Under the expectations hypothesis, if expectations are for lower inflation in the future than what it currently is, the yield curve's slope:
A) Will become more upward sloping
B) Will become flat
C) Will be negative
D) Will be vertical

Question

Quizplus · Accepted Answer

If expectations are for lower inflation in the future, interest rates are expected to decrease, leading to a downward sloping or negative yield curve.

Under the Expectations Hypothesis, If Expectations Are for Lower Inflation