41) The ________ of the term structure states the following: the interest rate on a long-term bond will equal an average of short-term interest rates expected to occur over the life of the long-term bond plus a term premium that responds to supply and demand conditions for that bond.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
42) A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
43) The steeply upward sloping yield curve in the figure above indicates that
A) short-term interest rates are expected to rise in the future.
B) short-term interest rates are expected to fall moderately in the future.
C) short-term interest rates are expected to fall sharply in the future.
D) short-term interest rates are expected to remain unchanged in the future.
44) The steeply upward sloping yield curve in the figure above indicates that ________ interest rates are expected to ________ in the future.
A) short-term; rise
B) short-term; fall moderately
C) short-term; remain unchanged
D) long-term; fall moderately
45) The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to
A) rise in the near-term and fall later on.
B) fall sharply in the near-term and rise later on.
C) fall moderately in the near-term and rise later on.
D) remain unchanged in the near-term and rise later on.
46) The U-shaped yield curve in the figure above indicates that the inflation rate is expected to
A) remain constant in the near-term and fall later on.
B) fall sharply in the near-term and rise later on.
C) rise moderately in the near-term and fall later on.
D) remain constant in the near-term and rise later on.
47) The mound-shaped yield curve in the figure above indicates that short-term interest rates are expected to
A) rise in the near-term and fall later on.
B) fall moderately in the near-term and rise later on.
C) fall sharply in the near-term and rise later on.
D) remain unchanged in the near-term and fall later on.
48) The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to
A) remain constant in the near-term and fall later on.
B) fall moderately in the near-term and rise later on.
C) rise moderately in the near-term and fall later on.
D) remain unchanged in the near-term and rise later on.
49) An inverted yield curve predicts that short-term interest rates
A) are expected to rise in the future.
B) will rise and then fall in the future.
C) will remain unchanged in the future.
D) will fall in the future.
50) When short-term interest rates are expected to fall sharply in the future, the yield curve will
A) slope up.
B) be flat.
C) be inverted.
D) be an inverted U shape.
51) If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a ________ slope.
A) steep upward
B) slight upward
C) flat
D) downward
52) When the yield curve is flat or downward-sloping, it suggest that the economy is more likely to enter
A) a recession.
B) an expansion.
C) a boom time.
D) a period of increasing output.
53) A ________ yield curve predicts a future increase in inflation.
A) steeply upward sloping
B) slight upward sloping
C) flat
D) downward sloping
54) If a higher inflation is expected, what would you expect to happen to the shape of the yield curve? Why?
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