When long-term interest rates are higher than short-term rates, as they were in 2010:
A)it implies that short-term interest rates are expected to fall.
B)it has no implication for short-term interest rates.
C)it implies that inflation will fall.
D)it implies that short-term interest rates are expected to rise.

Question

Quizplus · Accepted Answer

When long-term interest rates are higher than short-term rates, it typically implies that the market expects short-term rates to rise in the future. This is because long-term rates tend to reflect market expectations for future economic growth and inflation, while short-term rates are more influenced by current monetary policy decisions by central banks. Therefore, if long-term rates are higher, it suggests that the market is anticipating a future where monetary policy will need to tighten, leading to higher short-term rates.

When Long-Term Interest Rates Are Higher Than Short-Term Rates, as They