If the Federal Reserve tightens the money supply, other things held constant, short-term interest rates will be pushed upward, and this increase will generally be greater than the increase in rates in the long-term market.

Question

Quizplus · Accepted Answer

When the Federal Reserve tightens the money supply, short-term interest rates will typically rise faster and to a greater extent than long-term interest rates. This is because short-term rates are more directly influenced by changes in the federal funds rate, which is controlled by the Fed, while long-term rates are influenced by a wide range of factors and expectations beyond the Fed's control.

If the Federal Reserve Tightens the Money Supply, Other Things