What is meant by a Taylor rule? What would the Taylor rule call for in the setting of the policy interest rate if inflation were 3 percent, the target for inflation were 1 percent, and there were a positive output gap of 1 percent? What would be the setting if inflation were 1 percent and there were no output gap (positive or negative)?
Why do major financial institutions face the need to sell assets during a crisis? Why are these sales frequently characterized as fire sales? During such times, why do markets for risky assets function poorly? Why are investors who normally look for bargains reluctant to step in to cushion the drop in asset prices?
What is an adverse feedback loop? How does this work to worsen the financial system and the economy?