Under the Expectations Hypothesis, a Downward-Sloping Yield Curve Suggests

question 39

Multiple Choice

Under the Expectations Hypothesis, a downward-sloping yield curve suggests:

• A)investors expect future short-term interest rates to fall.
• B)investors expect future short-term interest rates to rise.
• C)this is a trick question, the yield curve always slopes upward.
• D)investors expect future short-term interest rates to remain constant.

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Definitions:

Common Stock

Equity ownership in a corporation, offering voting rights and dividends to shareholders, subordinate to preferred stock.

Retained Earnings

The portion of net income that is not distributed to shareholders as dividends but is kept by the company for reinvestment or to pay off debt.

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from its total revenue.

Inventory Method

The approach or system used by a company to track and manage inventory, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).