According to the expectations hypothesis, an upward-sloping yield curve implies that
A)interest rates are expected to remain stable in the future.
B)interest rates are expected to decline in the future.
C)interest rates are expected to increase in the future.
D)interest rates are expected to decline first, then increase.

Question

Quizplus · Accepted Answer

The expectations hypothesis states that long-term interest rates are an average of the market's expectation of future short-term interest rates. An upward-sloping yield curve means that long-term interest rates are higher than short-term interest rates, which implies that the market expects interest rates to increase in the future.

According to the Expectations Hypothesis, an Upward-Sloping Yield Curve Implies