Suppose that financial market participants now expect a future tax increase in one year. Also assume that the yield curve is initially upward sloping. Given this information, we would expect which of the following to occur?
A) The yield curve will become steeper.
B) The yield curve will become vertical.
C) i2t will increase.
D) i2t will decrease.
E) The yield curve will become horizontal.
Correct Answer:
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