If the Federal Reserve decreases the Federal funds rate, other short-term interest rates__________ and the exchange rate __________.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases the Federal funds rate, other short-term interest rates also fall as banks lower their borrowing rates. This causes investors to seek higher yields elsewhere, leading to a decrease in demand for the domestic currency and a fall in the exchange rate. Therefore, the correct answer is D - both short-term interest rates and the exchange rate fall.

If the Federal Reserve Decreases the Federal Funds Rate, Other