Economics Monetary Policy Questions
Monetary policy can impact long-term interest rates through various channels. When the central bank implements expansionary monetary policy, such as lowering interest rates or increasing the money supply, it can lead to a decrease in long-term interest rates. This is because lower interest rates encourage borrowing and investment, which increases the demand for long-term bonds and lowers their yields. Conversely, contractionary monetary policy, such as raising interest rates or reducing the money supply, can lead to an increase in long-term interest rates. Higher interest rates discourage borrowing and investment, reducing the demand for long-term bonds and increasing their yields. Overall, the central bank's actions and policies play a crucial role in shaping long-term interest rates.