In mid-October 2019, the Federal Reserve decreased the money supply, creating a liquidity effect in...
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Accounting
In mid-October 2019, the Federal Reserve decreased the money supply, creating a liquidity effect in money markets.
How does would affect the yield curve? Assume that in the short term, the liquidity effect dominates, but in the medium-to-long-term the other effects dominate the movement in interest rates. Specifically, discuss how changes in expected future interest rates are expected to affect the current rates on short-term and long-term bonds today. I recommend using equations to support your answer.
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