- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 2. Monetary Policy Tools and Monetary Transmission
CFA Practice Question
When the Federal Reserve raises the federal funds rate, the long-term real interest rate ______ and investment ______.
A. rises; increases
B. falls; decreases
C. rises; decreases
Explanation: If other factors remain the same, the lower the real interest rate, the greater the amount of investment.
User Contributed Comments 2
| User | Comment |
|---|---|
| Lambo83 | i thought the Fed raising short-term rates can actually lower long-term rates due to inflation and business expectations in the longer-term future. Higher rates today should mean lower inflation in the future. Essentially I'm talking about manipulating the yield curve. Anyone has anyone useful thoughts on this view? |
| edwardike | Maturity risk. If short term investors get compensate for x, long term must be compensated for x+ |