According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, long-term rates are expected to decline.

Question

Quizplus · Accepted Answer

According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, long-term rates are expected to rise, not decline. This is because investors expect short-term rates to increase in the future, which would lead to an increase in long-term rates as well.

According to the Expectations Hypothesis, When Long-Term Interest Rates Are