If investors expect higher future interest rates,the yield curve generated by the liquidity premium theory is ______ and ____________than the yield curve implied by the expectations theory.
A)ascending; steeper
B)ascending; flatter
C)descending; steeper
D)descending; flatter

Question

Quizplus · Accepted Answer

The liquidity premium theory suggests that investors require a premium for holding longer-term securities due to increased risk. If investors expect higher future interest rates, the yield curve will be ascending and steeper compared to the expectations theory, which does not account for this premium.

If Investors Expect Higher Future Interest Rates,the Yield Curve Generated