Based on the expectations hypothesis,the steep upward sloping yield curve in June of 2013 indicted that short-term rates would ________ in the future.
A) climb
B) fall
C) remain the same
D) change in a random fashion

Question

Quizplus · Accepted Answer

The expectations hypothesis states that long-term interest rates are equal to the average of expected future short-term interest rates. In June 2013, the yield curve was steeply upward sloping, indicating that market participants expected short-term interest rates to increase in the future. Therefore, the best choice is A, climb.

Based on the Expectations Hypothesis,the Steep Upward Sloping Yield Curve