Assume That the One- Year Interest Rate Is on the Vertical

question 35

Multiple Choice

Assume that the one- year interest rate is on the vertical axis of the IS- LM model and that the yield curve is initially upward sloping. If financial market participants now expect the central bank will pursue a monetary expansion in the future, we would expect which of the following to occur?

• A) The yield curve will become vertical.
• B) The yield curve will become steeper.
• C) The yield curve will become horizontal.
• D) The yield curve will become downward sloping.
• E) The yield curve will become flatter.

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