Long-term interest rates will be ______ relative to short-term interest rates if
A) high; people expect the Federal Reserve to decrease short-term rates in the future.
B) high; people expect the Federal Reserve to increase long-term rates in the future.
C) low; people expect the Federal Reserve to increase short-term rates in the future.
D) low; people expect the Federal Reserve to decrease short-term rates in the future.

Question

Quizplus · Accepted Answer

If people expect the Federal Reserve to decrease short-term rates in the future, long-term rates will be low relative to short-term rates because investors anticipate lower rates overall, leading to a decrease in long-term yields.

Long-Term Interest Rates Will Be ______ Relative to Short-Term Interest