A ________ yield curve predicts a future increase in inflation.
A)steeply upward sloping
B)slight upward sloping
C)flat
D)downward sloping

Question

Quizplus · Accepted Answer

A steeply upward sloping yield curve, also known as a 'steep' yield curve, suggests that investors expect higher inflation in the future. This occurs because longer-term bonds typically have higher yields than short-term bonds, as investors demand higher compensation for lending their money for a longer period of time. If inflation is expected to increase, investors anticipate that interest rates set by the central bank will also rise, causing longer-term bond yields to increase more than short-term yields. This results in a steep yield curve.

A ________ Yield Curve Predicts a Future Increase in Inflation