ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The official interest rate has an effect on
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Expectations
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Money market interest rates
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Neither 1 nor 2
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None of the above
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Explanation:
Detailed explanation-1: -The expectations theory of the term structure holds that the long-term interest rate is a weighted average of present and expected future short-term interest rates. If future short rates are expected to remain constant, then the long rate will equal the short rate (plus a constant risk premium).
Detailed explanation-2: -Markets now view it as probable that the Fed Funds rate reaches 5.25% to 5.50% in 2023.
Detailed explanation-3: -In general, higher interest rates are a policy response to rising inflation. Conversely, when inflation is falling and economic growth slowing, central banks may lower interest rates to stimulate the economy.
There is 1 question to complete.