The Expectations Hypothesis suggests the:
A)yield curve should usually be downward sloping.
B)yield curve should usually be upward sloping.
C)slope of the yield curve reflects the risk premium associated with longer-term bonds.
D)slope of the yield curve depends on the expectations for future short-term rates.

Question

Quizplus · Accepted Answer

The Expectations Hypothesis states that the slope of the yield curve depends on the expectations for future short-term rates. Specifically, if investors expect future short-term rates to increase, the yield curve will be upward sloping, and if they expect short-term rates to decline, it will be downward sloping. Therefore, D is the correct answer.

The Expectations Hypothesis Suggests The