Question

Statements True False When the Fed increases the money supply, short-term interest rates tend to dedine. Actions that lower short-term interest rates will always lower long-term interest rates. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates. The Federal Reserve Board has a significant influence over the level of economic activity, inflation, interest rates in the United States

Answer 1

1]

True.

Interest rates are a function of demand and supply of money in the economy. Higher the demand/lower the supply, higher the interest rates, and vice versa. If the Fed increases money supply, the interest rates tend to decline.

2]

False.

Short-term rates and long-term rates are not affected in the same manner by actions of the Fed. This is because the factors affecting short term rates and long term rates are different. Some examples of these factors are economic cycle, inflation, etc.

3]

True.

Short-term rates are more sensitive to economic cycles than long term rates. This is because in times of recession or boom, the short term uncertainty is higher than long term uncertainty.

4]

False

The Fed has some influence over interest rates, and inflation but not significant influence. It has low influence over level of economic activity.