Suppose the expectations hypothesis is true.If the yield curve is flat this means that ________.

Question

Quizplus · Accepted Answer

According to the expectations hypothesis, the long-term interest rate is equal to the average of current and expected short-term interest rates. If the yield curve is flat, it means that the market expects short-term interest rates to remain the same in the future, indicating that investors do not expect interest rates to change.

Suppose the Expectations Hypothesis Is True