Suppose that financial market participants now expect a future tax cut and that the yield curve is initially upward sloping.Given this information,we would expect which of the following to occur?

Question

Quizplus · Accepted Answer

If financial market participants expect a future tax cut, this could lead to an increase in economic growth and inflation expectations. As a result, long-term interest rates would rise more than short-term interest rates, causing the yield curve to become steeper.

Suppose That Financial Market Participants Now Expect a Future Tax