If the Fed wishes to decrease long- term investment spending, it must:

Question

Quizplus · Accepted Answer

When the Fed raises short-term interest rates and the expected future rates, it makes borrowing more expensive, which decreases investment spending. This is because businesses and investors are less likely to borrow money if the interest rate is too high, and they will therefore invest less in long-term projects. Cutting the current short-term interest rate or convincing the public that future short-term rates will be low would have the opposite effect and encourage more investment spending.

If the Fed Wishes to Decrease Long- Term Investment Spending