Question

If the Fed wishes to decrease long-term investment spending, it must

cut the current short-term interest rate.

convince the public that the expected future short-term rates would be low.

raise the short-term interest rates and the expected short-term future rates.

Both cut the current short-term interest rate and convince the public that the expected future short-term rates would be low are correct.

Answer 1

Ans. Raise the short term interest rate and expected short term furture rates

Increase in interest rate will increase cost of borrowing which will decrease the expected return of the investors from their investments who then will decrease their investment in short run. Increasing the short term future interest rate will ensure that in future cost of borrowing doesn't reduce leading to decrease in investment spending in long term also.

* Please don’t forget to hit the thumbs up button, if you find the answer helpful.