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    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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