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The Federal Open Market Committee has decided that the federal funds rate should be
0.5% rather than the current rate of 1.25%. The appropriate open market action is to
_____ Treasury bills to _____ money _____.
When long-term interest rates are higher than short-term rates, as they were in 2010, it:
implies that short-term interest rates are expected to fall.
has no implication for short-term interest rates.
implies that inflation will fall.
implies that short-term interest rates are expected to rise.
If long-term interest rates are 8% and short-term rates are 3%, the market expects:
short-term rates to fall.
short-term rates to rise.
short-term rates to remain the same.
there is no relationship between long-term and short-term rates.
Long-term interest rates and short-term interest rates:
usually move in lockstep.
always move closely together.
don’t always move closely together.
are independent of one another.
Long-term interest rates are higher than short-term rates. This reflects a belief that:
short-term rates will fall.
short-term rates will rise.
short-term rates will remain the same.
the Federal Reserve is undergoing a change in policy.
In September 2007, reversing its course, the Federal Reserve began a series of:
interest rate increases, reversing its previous policy of lowering interest rates to
fight the financial crisis.
interest rate increases to combat inflation.
cuts in the reserve requirements, reversing its previous policy of increasing the
reserve requirement, to stop bank failures.
cuts in the federal funds target rate to lower the interest rate, reversing its previous
policy of raising interest rates, to fight the financial crisis.