If, when the Fed cuts interest rates, the money supply increases, each dollar is able to buy a smaller fraction of the economy's production. Hence, more dollars are required to buy the same unit of stock. Also, investors who anticipated the cut would transfer their assets from cash to stock to preserve the asset value. Similarly, when the Fed raises rates, cash assets become more attractive than stock.
Is this essentially correct?
2007-09-19
05:43:06
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4 answers
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asked by
Anonymous
in
Economics