Which of the following is a feature of the 'Taylor Rule' for monetary policy?
A. Fiscal deficit is the primary target
B. Exchange rate is the only target
C. Interest rate responds only to money supply growth
D. Nominal interest rate responds to inflation gap and output gap
Answer: Option D
Solution (By JKSSB Mock Tests)
The Taylor Rule prescribes that the central bank should set the nominal interest rate in response to deviations of inflation from target and of output from potential.
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