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Question 1 12 points): Suppose the federal funds rate is 3 percent. Bond traders expect it to remain at that level for 3 months and
Question 1 12 points): Suppose the federal funds rate is 3 percent. Bond traders expect it to remain at that level for 3 months and then rise to 3.5 percent for 9 months. However, the FOMC raises the rate to 3.5 percent immediately. After this action, traders expect the funds rate to stay at 3.5 percent for a year. How does the FOMC's action affect the 3month interest rate, the 6-month rate, and the 1year rate? Show all steps and explain
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