In an effort to maintain price stability,it is expected that the European Central Bank will raise interest rates in the future.Which of the following is the most likely effect of such an action on short- and long-term interest rates in Europe?

Question

Quizplus · Accepted Answer

When the central bank raises interest rates, short-term interest rates tend to be affected more quickly and sharply than long-term interest rates. This is because long-term interest rates are influenced by a variety of factors, such as inflation expectations and global economic conditions, which may not change as quickly as short-term interest rates. As a result, long-term interest rates are likely to remain relatively higher than short-term interest rates, creating an upward-sloping yield curve.

In an Effort to Maintain Price Stability,it Is Expected That