If the Yield Curve Has a Mild Upward Slope,the Liquidity

question 42

Multiple Choice

If the yield curve has a mild upward slope,the liquidity premium theory 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) a decline in short-term interest rates in the near future and an even steeper decline further out in the future.

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Definitions:

Socially Efficient

A situation in which an allocation of resources maximizes total social welfare, taking into account both the benefits and costs to society as a whole.

Marginal Costs

The increase in cost due to the production of an extra unit of a product or service.

Movie Theatres

Venues equipped with a screen for exhibiting films to audiences, providing a range of visual and auditory experiences.

Natural Monopolist

A single firm that can supply a product or service to an entire market at a lower cost than two or more firms, due to economies of scale.