Question

Within the Monetary union, there can only be a single short-term interest rate but long-term interest...

Within the Monetary union, there can only be a single short-term interest rate but long-term interest rates can differ from one country to another because:
Group of answer choices


A)The long-term rate is controlled by national governments.

B)The ECB controls the short-term rate and leave the long-term rates to the markets.

C)The ECB chooses different long-term rates.

D)All other answers are wrong

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Answer #1

--> answer is D....all options are wrong becuase,even though short term interest rates are same across members,long term interest rates vary due to market forces and they are not controlled by governments. Long term interest rates are mainly determined by the price charged by the lender, the risk from the borrower and the fall in the capital value.These interest rates are implied by the prices at which the government bonds are traded on financial markets, not the interest rates at which the loans were issued.

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