According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, short-term rates are expected to rise.

Question

Quizplus · Accepted Answer

The expectations hypothesis suggests that long-term interest rates are an average of current and expected future short-term interest rates. Therefore, if long-term rates are higher than short-term rates, it implies that investors expect short-term rates to rise in the future.

According to the Expectations Hypothesis, When Long-Term Interest Rates Are