Question

According to the Taylor principle, for inflation to be stable, the central bank must respond to an

increase in inflation with ____ increase in the nominal interest rate.

A no Correct Answer Incorrect Answer
B an equal Correct Answer Incorrect Answer
C a greater Correct Answer Incorrect Answer
D a smaller Correct Answer Incorrect Answer
E a proportionate Correct Answer Incorrect Answer

Solution

According to the Taylor principle, for inflation to be stable, the central bank must respond to an increase in inflation with a greater increase in the nominal interest rate. 

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