Question

The Taylor Principle states that central banks raise nominal rates by ________ than any rise in expected inflation so that real interest rates ________ when there is a rise in inflation.

Answer 1

​more; rise

Step-by-step explanation:

Taylor's rule in economics is a forecasting model that is used to determine what the interest rates will be or should be as there are shifts in the economy of a country.

Taylor's rule gives guidance to the Federal Reserve whether it should raise the interest rates when inflation is high.

It says that when the inflation is increased by at least one percent, the Central Bank or the Federal Reserve should increase the nominal interest rate more than one percent to maintain the economy.

Thus when there is any rise in the inflation, according to the Taylor Principle, the Federal Reserve should raise the nominal rates more than the rise in inflation in order to rise the real interest rates.

Therefore, the answer is ---

​more; rise