Assume that debt maturity markets are segmented, such that short-term debt markets are funded by surplus units that are different from the surplus units that fund the long-term debt markets.Ifthe Treasury uses a relatively large proportion of ____ debt to finance the deficit, this may place upward pressure on ____ interest rates.
A) long-term; long-term
B) long-term; short-term
C) short-term; long-term
D) B and C

Question

Quizplus · Accepted Answer

If the Treasury uses a large proportion of long-term debt to finance the deficit, it increases demand in the long-term debt market, potentially raising long-term interest rates due to segmented markets.

Assume That Debt Maturity Markets Are Segmented, Such That Short-Term