Question

if potential output declines while actual output remains unchanged, what does the Taylor rule imply that policymakers should do to the fed funds rate

Answer 1

Answer:

Increased

Explanation:

In the case when there is a fall in the potential output and at the same time the actual output remains the same so here the fund rate should be increased as per the taylor rule as it decrease the output that result in the output gap to fall

So as per the given situation, the fed fund rate should be increased

Hence, the same is to be increased