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

question 31

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.Suppose that financial market participants expect that the central bank will pursue a monetary contraction in the future.Given this information,we would expect which of the following to occur?

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

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