The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run.
A) can; can
B) can; cannot
C) cannot; can
D) cannot; cannot
E) might be able to; might be able to

Question

Quizplus · Accepted Answer

In the short run, the Fed can influence the real interest rate through its monetary policy tools such as open market operations and changing the discount rate. However, in the long run, the real interest rate is mainly influenced by factors such as productivity, savings rates, and inflation expectations, over which the Fed has limited control. Therefore, the Fed can influence the real interest rate in the short run but cannot do so in the long run.

The Fed ________ Influence the Real Interest Rate in the Short