Question

Why does the yield curve naturally slope upwards? The yield curve slopes upwards due to ___________.

A. Economic recession
B. High inflation
C. Expectations of higher future interest rates
D. Increased government spending

Answer 1

The yield curve naturally slopes upwards due to expectations of higher future interest rates.

Step-by-step explanation:

The yield curve naturally slopes upwards due to expectations of higher future interest rates (C). When the yield curve slopes upwards, it means that long-term interest rates are higher than short-term interest rates. This occurs because investors expect interest rates to rise in the future, so they demand higher yields on long-term bonds to compensate for the potential loss of value if rates increase.