Changes in the federal funds rate usually result in
A)changes in both short-term and long-term interest rates with more of an effect on short-term interest rates.
B)changes in both short-term and long-term interest rates with more of an effect on long-term interest rates.
C)changes in both short-term and long-term interest rates with equal effect on both.
D)no change in either short-term or long-term interest rates.

Question

Quizplus · Accepted Answer

Changes in the federal funds rate have a greater impact on short-term interest rates than on long-term interest rates. This is because the federal funds rate directly affects the rates that banks charge each other for overnight loans, which in turn affects short-term borrowing rates for businesses and consumers. Long-term interest rates are influenced by a variety of economic factors beyond just the federal funds rate.

Changes in the Federal Funds Rate Usually Result in