Taylor Rule


A rule that suggests appropriate adjustments to interest rates, based on various economic factors such as inflation and employment rate. The rule indicates that if inflation or employment rates are higher than desired, interest rates should be increased in response to these conditions, and the opposite action should be taken under the opposite conditions. The Federal Reserve Board seems to take this rule under consideration, but does not always follow its suggestions when adjusting the interest rate. This rule was developed by John Taylor, a 20th century economist.

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You should try and make sure that you know how the taylor rule works and make it work for you.

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When Spencer considered the Taylor Rule, he felt confident that the Fed would seek to lower interest rates in the wake of the economic problems.

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Because the rate of inflation and employment have both increased over the past two years, Business Place, Inc. applied the Taylor Rule and increased the interest rate on their loans.

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