Question

John taylor's rule of thumb builds on the belief that in order to help the economy to produce at potential output, central banks are willing to tolerate ______.

Answer 1

John Taylor's thumb rule is based on the notion that in order to assist the economy, it is necessary to produce at potential output, central banks are willing to tolerate Positive rate of inflation.

The Taylor Rule define as:

The Taylor Rule is a rule that ties a central bank's policy rate to inflation and economic growth. It was developed in 1993 by economist John Taylor and posits an equilibrium federal funds rate 2% higher than the yearly inflation rate.

What is  rates of inflation?

Inflation is defined as an increase in the prices of goods and services purchased by households. It is calculated as the rate of change of such prices. Prices usually rise over time, but they can also fall (a situation called deflation).

Describe central banks:  

A central bank, reserve bank, or monetary authority is an institution that manages a state's or formal monetary union's currency and monetary policy as well as its commercial banking system. In contrast to a commercial bank, a central bank has a monopoly on raising the monetary base.

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