Under the Expectations Theory If Market Participants Expect That Future

question 22

Multiple Choice

Under the expectations theory if market participants expect that future short-term rates will be higher than current short-term rates, the yield curve will

• A)slope upward.
• B)slope downward.
• C)be flat.
• D)slope upward, slope downward, or be flat, depending on risk, liquidity, cost of information, and tax considerations.

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Definitions:

Asch

Refers to Solomon Asch, a psychologist best known for his research on conformity, demonstrating that individuals would conform to the group consensus even when the group view was clearly incorrect.

Group Size

The number of members constituting a group, which can influence the group's dynamics and functioning.

Confederates

Individuals who are part of a study's design but pretend to be participants, aiding in creating specific conditions for the actual participants' reactions.

Bystanders

People who are at a scene or occurrence yet do not participate.