If the Yield Curve Slope Is Flat for Short Maturities

question 30

Multiple Choice

If the yield curve slope is flat for short maturities and then slopes steeply upward for longer maturities,the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting

• A)a rise in short-term interest rates in the near future and a decline further out in the future.
• B)constant short-term interest rates in the near future and further out in the future.
• C)a decline in short-term interest rates in the near future and a rise further out in the future.
• D)constant short-term interest rates in the near future and a decline further out in the future.

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Definitions:

Increased Salivation

The enhanced production of saliva, often in response to the presence of food or anticipation of eating.

Pupil Constriction

The narrowing of the pupil, controlled by the iris, which regulates the amount of light entering the eye.

Increased Blood Sugar

A condition characterized by a higher than normal concentration of glucose in the blood, often a sign of diabetes or metabolic imbalance.

Amygdala

The amygdala is a region of the brain involved in emotion regulation, particularly fear and the processing of emotional memories.