At any time, the slope of the yield curve is affected by

Question

Quizplus · Accepted Answer

The slope of the yield curve is influenced by all of the factors mentioned in options A, B, and C. The comparative equilibrium of supply and demand in the short-term and long-term market segments affects the yield curve because if there is high demand for short-term bonds, prices will go up, and yields will decline, causing the yield curve to become flatter. If demand is high for long-term bonds, the yield curve will become steeper as investors demand higher yields. Inflationary expectations also have a significant impact on the yield curve because investors will demand higher yields to compensate for expected inflation, which in turn can lead to a steeper yield curve. Finally, liquidity preferences affect the slope of the yield curve because investors may prefer shorter-term bonds that provide more liquidity in uncertain economic times, causing the yield curve to flatten.

At Any Time, the Slope of the Yield Curve Is