The term structure of interest rates predicts that long-term interest rates will exceed short-term interest rates,resulting in an upward sloping yield curve. If Central Banks were to intervene in the financial market to "flatten" the shape of the yield curve,they would attempt this by
A) purchasing long-term bonds.
B) selling long-term bonds.
C) purchasing short-term bonds.
D) selling short-term bonds.

Question

Quizplus · Accepted Answer

Purchasing long-term bonds increases their prices and lowers their yields, which can help flatten the yield curve by reducing the spread between long-term and short-term interest rates.

The Term Structure of Interest Rates Predicts That Long-Term Interest