The expectations hypothesis states that investors

Question

Quizplus · Accepted Answer

The expectations hypothesis suggests that the shape of the yield curve reflects investors' expectations about future interest rates. Specifically, if investors expect short-term interest rates to rise in the future, they will demand higher yields on long-term bonds to compensate for the anticipated increase. This is because long-term rates are seen as an average of current and expected future short-term rates.

The Expectations Hypothesis States That Investors