Long-term interest rates may not closely follow short-term interest rates if
A)People prefer to hold transactions accounts over cash.
B)The required reserve ratio decreases.
C)Lenders are reluctant to make loans.

Question

Quizplus · Accepted Answer

If lenders are reluctant to make loans, long-term interest rates may remain high even if the central bank lowers short-term interest rates. This can happen if lenders are concerned about the level of risk associated with lending, or if borrowers are not creditworthy enough to secure long-term loans at lower interest rates. In this scenario, the market may be unwilling to provide long-term funding even if short-term rates are low, which would effectively decouple long-term and short-term rates.

Long-Term Interest Rates May Not Closely Follow Short-Term Interest Rates