Compare todays short-term interest rates to expected short

Reference no: EM13392178

Use a picture to show the impact on the yield curve of the following shocks, assuming that the expectations theory is correct and that the initial yield curve is flat. Start by drawing a bond market supply and demand diagram to figure out what will happen to short-term interest rates when the shocks occur. Compare today's short-term interest rates to expected short interest rates in the future, and then apply the expectations theory's predictions to determine whether the yield curve should slope up or down.

Reference no: EM13392178

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