Macroeconomists typically assume that most market interest rates move in tandem with the central bank's official interest rate.While this assumption allows them to speak of "the" interest rate,it is a simplification of the fact that central banks generally have better control over _______ than over _______.
A) short-term nominal interest rates;long-term nominal interest rates
B) short-term real interest rates;short-term nominal interest rates
C) long-term nominal interest rates;short-term nominal interest rates
D) long-term mortgage rates;short-term mortgage rates
E) the prime business rate;the overnight rate

Question

Quizplus · Accepted Answer

Central banks have more control over short-term nominal interest rates as they directly influence the overnight lending rates between banks. Long-term interest rates, on the other hand, are influenced by a variety of factors such as inflation expectations, market sentiments, and global economic conditions, making them more difficult for central banks to control. Therefore, the assumption that all market interest rates move in tandem with the central bank's official interest rate is more accurate for short-term nominal interest rates than for long-term interest rates.

Macroeconomists Typically Assume That Most Market Interest Rates Move in Tandem