The standard discussion of monetary policy is based on the assumption that:
A)long-term rates will fall when the Fed pushes up short-term interest rates.
B)long-term rates will rise when the Fed pushes up short-term interest rates.
C)short-term rates will fall when the Fed pushes up long-term interest rates.
D)short-term rates will rise when the Fed pushes up long-term interest rates.

Question

Quizplus · Accepted Answer

The standard discussion of monetary policy assumes that when the Federal Reserve (Fed) increases short-term interest rates, it signals tighter monetary policy, which often leads to an increase in long-term rates as well. This is because higher short-term rates can lead to expectations of higher inflation or a stronger economy, both of which can cause long-term rates to rise.

The Standard Discussion of Monetary Policy Is Based on the Assumption