According to the expectations hypothesis, an upward-sloping yield curve implies that
A) interest rates are expected to remain stable in the future.
B) interest rates are expected to decline in the future.
C) interest rates are expected to increase in the future.
D) interest rates are expected to decline first, then increase.
E) interest rates are expected to increase first, then decrease.

Question

Quizplus · Accepted Answer

The expectations hypothesis suggests that an upward-sloping yield curve indicates that investors expect interest rates to increase in the future. This is because longer-term bonds must offer higher yields to be attractive, reflecting the anticipation of rising rates.

According to the Expectations Hypothesis, an Upward-Sloping Yield Curve Implies