When the flow of money is tight, the price of short-term loans will be bid ________ and the federal fund rate (FFR) will ________.

Question

Quizplus · Accepted Answer

When the flow of money is tight, demand for short-term loans increases, which results in lenders being able to charge higher rates. This bidding up of prices corresponds to choice A. In addition, the higher demand for short-term loans may put upward pressure on the federal fund rate (the rate at which banks lend to each other), leading to a rise in the FFR.

When the Flow of Money Is Tight, the Price of Short-Term