Costner National, a commercial bank, obtains short-term deposits and makes long-term fixed-rate loans. It should be adversely affected when the Fed:

Question

Quizplus · Accepted Answer

Costner National's business model is based on borrowing short-term and lending long-term at a fixed rate. This means that if the Fed uses a tight-money policy to reduce the money supply and increase interest rates, it will become more expensive for Costner National to borrow short-term funds to lend out long-term. This can cause a squeeze on the bank's profitability and negatively impact its operations. Therefore, a tight-money policy would adversely affect Costner National.

Costner National, a Commercial Bank, Obtains Short-Term Deposits and Makes