According to the Expectations Hypothesis

question 27

Multiple Choice

According to the expectations hypothesis:

• A) when short-term interest rates are expected to rise in the future, the long-term interest rates are equal to current short-term interest rates.
• B) when short-term rates are expected to remain constant in the future, the long-term interest rates are higher than current short-term interest rates.
• C) short-term bonds are perfect substitutes for long-term bonds.
• D) expectations of future short-term rates equal estimates of current short-term rates.

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