According to the expectations hypothesis, if investors anticipate higher rates of inflation in the future, the yield curve will be downsloping.

Question

Quizplus · Accepted Answer

According to the expectations hypothesis, if investors anticipate higher rates of inflation in the future, the yield curve will be upsloping, not downsloping. This is because investors will demand higher yields on longer-term bonds to compensate for the expected loss of purchasing power due to inflation.

According to the Expectations Hypothesis, If Investors Anticipate Higher Rates