Changes in the slope of the yield curve
A)reflect only changes in the demand for securities, since lenders dominate the securities markets.
B)reflect only changes in the supply of securities, since borrowers dominate the securities markets.
C)reflect changes in the supply of and demand for securities which are induced by changes in interest rate expectations.
D)come about magically.

Question

Quizplus · Accepted Answer

Changes in the slope of the yield curve reflect the changes in supply of and demand for securities, which are induced by changes in interest rate expectations. Expectations of future interest rates affect both borrowers and lenders in the securities market, leading to changes in the supply and demand of securities and ultimately influencing the shape of the yield curve. Therefore, option C is the correct answer. Options A and B are incorrect because changes in the slope of the yield curve are not solely influenced by either demand or supply of securities. Option D is an irrelevant and incorrect statement.

Changes in the Slope of the Yield Curve