During tight money periods, generally
A) long-term rates are higher than short-term rates.
B) short-term rates are higher than long-term rates.
C) short-term rates are equal to long-term rates.
D) the relationship between short- and long-term rates remains unchanged.

Question

Quizplus · Accepted Answer

During tight money periods, central banks aim to reduce inflation by raising the cost of borrowing. This often results in higher short-term rates relative to long-term rates as the demand for short-term credit increases while long-term borrowing slows down. Therefore, option B is correct.

During Tight Money Periods, Generally