Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates.
Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false:
a. Long-term interest rates are not as sensitive to booms and recessions as are short-term interest rates.
i. True
ii. False
b. If the Fed injects a huge amount of money into the markets, inflation is expected to decline, and long-term interest rates are expected to rise.
i. True
ii. False
c. When the Fed increases the money supply, short-term interest rates tend to decline.
i. True
ii. False
d. When the economy is weakening, the Fed is likely to decrease short-term interest rates.
i. True
ii. False
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