Long-term interest rates may not closely follow short-term interest rates if
A)People prefer to hold transactions accounts over cash.
B)The required reserve ratio decreases.
C)Lenders are reluctant to make loans.
D)The Fed intervenes in the bond market.

Question

Quizplus · Accepted Answer

If lenders are reluctant to make loans, it can cause a disconnect between short-term and long-term interest rates, as the supply of long-term loans may be restricted, affecting long-term rates independently of short-term rates.

Long-Term Interest Rates May Not Closely Follow Short-Term Interest Rates