In General,a Downward-Sloping Term Structure Implies That Investors Expect Future

question 23

Multiple Choice

In general,a downward-sloping term structure implies that investors expect future short-term interest rates to:

• A)decrease.
• B)increase.
• C)be the same as the current rate.
• D)none of the options given.

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Definitions:

Impact Lag

The delay between the implementation of a policy (such as monetary or fiscal policy) and the observable effects of this policy on the economy.

Fiscal Policy

Government policies regarding taxation and spending that are used to influence economic conditions, including economic growth, inflation, and unemployment.

Budget Deficit

A scenario in which a government spends more than it earns in a particular timeframe, resulting in the need to accumulate debt or borrow money.

Automatic Stabilizers

Economic policies and programs, such as unemployment benefits and progressive taxation, designed to automatically reduce volatility in the economy by offsetting fluctuations in economic activity without direct intervention by policymakers.