Suppose that financial market participants now expect a future tax increase in one year.Also assume that the yield curve is initially upward sloping.Given this information,we would expect which of the following to occur?

Question

Quizplus · Accepted Answer

Expectations of a future tax increase can lead to expectations of slower economic growth, which may cause long-term interest rates (i₂t) to decrease as investors anticipate lower inflation and reduced demand for borrowing.

Suppose That Financial Market Participants Now Expect a Future Tax