The Yield on a One-Year Bond Is Currently 3% and the Expected

question 7

Multiple Choice

The yield on a one-year bond is currently 3% and the expected yield for the next three years is also 3%. If the term premium is 0.5, then the yield curve

• A) is upward sloping.
• B) is flat.
• C) is downward sloping.
• D) cannot be determined.

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Scientific Method

A method of research with defined steps that include experiments and careful observation to validate or disprove a hypothesis.

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Natural Experiment

An observational study in which an event or a policy affects the variables of interest, allowing researchers to study outcomes without manipulating the study environment.

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A decrease in the cost of gasoline, which can affect consumer spending, travel behavior, and the overall economy.