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

Question

Quizplus · Accepted Answer

When the Fed tightens the money supply, it reduces the amount of money available for borrowing, which leads to an increase in short-term interest rates. This increase is usually greater than the increase in long-term rates because short-term rates are more directly affected by changes in the money supply, whereas long-term rates are influenced by a variety of factors such as inflation expectations and economic growth prospects.

If the Federal Reserve Tightens the Money Supply,other Things Held