During tight money periods

Question

Quizplus · Accepted Answer

During tight money periods, the central bank tries to control inflation by increasing short-term interest rates. This makes borrowing more expensive, which reduces demand and slows down the economy. As a result, short-term rates tend to be higher than long-term rates as investors demand a higher return for lending money over a shorter duration. This creates an upward sloping yield curve with higher rates at the short end and lower rates at the long end. Therefore, option B is the correct choice.

During Tight Money Periods