What does a flat yield curve imply, according to the expectations theory of the term structure of interest rates?
A)The price level will not change in the future.
B)Future long-term rates are expected to rise.
C)Future long-term rates are expected to fall.
D)Future short-term rates are not expected to change.

Question

Quizplus · Accepted Answer

According to the expectations theory of the term structure of interest rates, a flat yield curve implies that future short-term rates are not expected to change. This theory suggests that the shape of the yield curve reflects market expectations for future interest rates.

What Does a Flat Yield Curve Imply, According to the Expectations