Which of the following best explains why the long-term interest ...

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Which of the following best explains why the long-term interest rate will generally change by less than 1 when the short-term interest rate changes by 1?
 
  A) The mathematical calculations are more difficult for analysts in the case of long-term bonds.
  B) Long-term rates are always lower than short-term rates, so there is less room for them to change.
  C) Financial market participants will not expect this increase in the short-term interest rate to persist fully in the future.
  D) Financial markets are often affected by bubbles and fads.
  E) none of the above

Question 2

For this question, assume that individuals hold both currency and checkable deposits. The money multiplier is equal to
 
  A) 1/c.
  B) 1/c + (1 - c).
  C) c + (1 - c).
  D) 1/.
  E) 1/(1-c)

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Answer to Question 1

C

Answer to Question 2

B

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Excellent