According to the expectations theory, if next year's expected short-term rate is above the current short-term rate, the yield curve will be
A)horizontal.
B)vertical.
C)upward sloping.
D)downward sloping.

Question

Quizplus · Accepted Answer

The expectations theory suggests that the yield curve reflects market expectations of future short-term interest rates. If next year's expected short-term rate is above the current short-term rate, it implies that the market expects interest rates to rise. This expectation of rising interest rates would result in an upward sloping yield curve.

According to the Expectations Theory, If Next Year's Expected Short-Term