8. Macroeconomic factors that influence interest rate levels

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:

Statements

Countries with strong balance sheets and declining budget deficits tend to have lower interest rates.

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.

During recessions, short-term interest rates decline more sharply than long-term interest rates.

The Federal Reserve's ability to use monetary policy to control economic activity in the United States is limited because US

interest rates are highly dependent on interest rates in other parts of the world.

Grade It Now

True False

O

O

O

O

O

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O

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