According to the Expectations Theory of the Term Structure,the Interest

question 26

Multiple Choice

According to the expectations theory of the term structure,the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.

• A)average
• B)sum
• C)difference
• D)multiple

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Definitions:

Price

The sum of money anticipated, demanded, or provided as compensation for something.

Long-run Equilibrium

A state in which economic forces such as supply and demand are balanced, and all adjustments to economic conditions have been made, often characterized by firms earning normal profit in perfectly competitive markets.

Short-run Equilibrium

A state where supply and demand are balanced at a particular price level within a short-term period, with at least one fixed input.

Cost

The amount of money or resources spent in the production of goods and services.