According to be unbiased expectations hypothesis, whenever the current short-term interest rate is below the current long-term interest rate, then the short term rate is expected to rise in the future.

Question

Quizplus · Accepted Answer

The unbiased expectations hypothesis suggests that the long-term interest rate is an average of current and future expected short-term interest rates. Therefore, if the current short-term rate is below the long-term rate, it implies that the short-term rate is expected to rise in the future to converge with the long-term rate.

According to Be Unbiased Expectations Hypothesis, Whenever the Current Short-Term