According to the Taylor rule, the Fed reacts to an increase in inflation by ____________. __________ thus stabilizing inflation.
a) increasing the Fed Funds rate one-for-one; The resulting increase in real rates reduces aggregate demand.
b) increasing the Fed Funds rate more than proportionally; The resulting increase in real rates reduces aggregate demand
c) increasing the Fed Funds rate less than proportionally; The resulting fall in real rates increases aggregate demand.
d) lowering the Fed Funds rate; The resulting increase in real rates reduces aggregate demand
