According to the expectations theory, if the market believes that interest rates are likely to increase in the near future, it would lead to
A) an increase in the demand for short-term securities.
B) an increase in the demand for long-term securities.
C) a decrease in the supply of short-term securities.
D) an increase in the supply of long-term securities.

Question

Quizplus · Accepted Answer

If the market expects interest rates to rise, investors will prefer short-term securities to avoid being locked into lower rates, increasing demand for short-term securities.

According to the Expectations Theory, If the Market Believes That