According to the expectations theory of term structure,if market participants expect future short-term rates to be higher than current short-term rates,the yield curve will:
A) be upward-sloping.
B) be downward-sloping.
C) be flat.
D) slope upward or downward or be flat, depending on risk and liquidity considerations.

Question

Quizplus · Accepted Answer

According to the expectations theory, an upward-sloping yield curve reflects market expectations of higher future short-term rates. This is because investors demand higher yields to compensate for the expected increase in interest rates.

According to the Expectations Theory of Term Structure,if Market Participants