Under the pure expectations hypothesis and constant real interest rates for different maturities, an upward-sloping yield curve would indicate ________.

Question

Quizplus · Accepted Answer

The pure expectations hypothesis suggests that the shape of the yield curve reflects market expectations about future interest rates. An upward-sloping yield curve, under the assumption of constant real interest rates, indicates that investors expect nominal interest rates to increase, which is often due to expected increases in inflation over time.

Under the Pure Expectations Hypothesis and Constant Real Interest Rates