A proposed increase in the federal income tax rate should:
A) have no impact on the slope of the yield curve since the tax laws impact all maturities the same.
B) cause the slope of the yield curve to become negative.
C) increase the slope of the yield curve since it increases the risk premium of longer maturities.
D) flatten the yield curve.

Question

Quizplus · Accepted Answer

A proposed increase in the federal income tax rate will increase the cost of borrowing for all maturities, which will lead to an increase in the slope of the yield curve.

A Proposed Increase in the Federal Income Tax Rate Should