When short-term interest rates are expected to fall sharply in the future,the yield curve will
A)slope up.
B)be flat.
C)be inverted.
D)be an inverted U shape.

Question

Quizplus · Accepted Answer

When short-term interest rates are expected to fall sharply in the future, investors will demand higher yields for longer-term bonds in order to compensate for the risk of holding them for a longer period of time. This causes long-term bond prices to rise and yields to fall, resulting in an inverted yield curve.

When Short-Term Interest Rates Are Expected to Fall Sharply in the Future,the