Long-term interest rates are higher than short-term rates.This reflects a belief that:

Question

Quizplus · Accepted Answer

When long-term interest rates are higher than short-term rates, it is known as a yield curve that is upward sloping. This typically reflects an expectation in the market that short-term rates will rise in the future. Investors demand higher yields on long-term bonds to compensate for the potential rise in short-term rates, which means that they will get paid less as interest rates rise. Therefore, the best choice is B, which reflects the belief that short-term rates will rise.

Long-Term Interest Rates Are Higher Than Short-Term Rates