Assume the Expectations Hypothesis Regarding the Term Structure of Interest

question 128

Multiple Choice

Assume the expectations hypothesis regarding the term structure of interest rates is correct. Then, if the current two-year interest rate is 5% and the current one-year rate is 6%, then investors expect the future one-year rate to be:

• A) 4%.
• B) 5%.
• C) 6%.
• D) 1%.

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Definitions:

Output

The total amount of goods and services produced by an economy, company, or sector.

Short-Run Aggregate Supply

The total supply of goods and services that firms in an economy want to sell at a given price level in the short term.

Spending Multiplier

A concept in economics that represents how changes in autonomous spending lead to changes in total economic output.

Budget Surplus

A situation where a government's revenues exceed its expenditures within a specific period.