According to the expectations hypothesis, a rising yield curve indicates that investors expect
A) future short-term rates to fall.
B) future short-term rates to rise.
C) future long-term rates to rise.
D) future long-term rates to fall.
E) None of these are correct.

Question

Quizplus · Accepted Answer

The expectations hypothesis suggests that long-term interest rates are based on the market's expectations for future short-term interest rates. A rising yield curve indicates that investors expect future short-term rates to rise, which would lead to higher long-term rates.

According to the Expectations Hypothesis, a Rising Yield Curve Indicates