What Happens to the Shape of the Yield Curve If

question 36

Multiple Choice

What happens to the shape of the yield curve if, ceteris paribus, expectations about future interest rates change such that future short term interest rates are expected to be higher than previously expected?

• A)the slope (shape) of the yield curve remains the same but the curve shifts up.
• B)the differences among various yield curves narrows.
• C)the yield curve becomes steeper.
• D)Both a and b are correct.

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Definitions:

Supply Price

The price of a given quantity at which producers will supply that quantity.

Quota Limit

The total amount of a good under a quota or quantity control that can be legally transacted.

Demand Price

The price at which consumers are willing to buy a specific quantity of a good or service.

Market Price

The present cost for purchasing or selling an asset or service.