Question

Which of the following statements is most correct? Select one: a. Other things equal, the interest rate in an area with young population would likely be lower than that in an area with old population. b. If the Fed maintains a policy to expand money supply for several years, the entire yield curve will fall due to a higher expected future inflation. c. Short-term interest rates are less volatile than long-term interest rates because the Fed operates mainly in the long-term sector. d. Immediately after the Fed announces to expand the money supply, the long-term interest rate will drop while the short-term interest rates will raise due to a higher expected future inflation. e. An upward-sloping Treasury yield curve suggests that long-term interest rates are higher than short-term interest rates.

Answer 1

Answer: e. An upward-sloping Treasury yield curve suggests that long-term interest rates are higher than short-term interest rates.

Step-by-step explanation:

The Yield curve is used to compare interest rates across different periods as it uses the yields of securities that have the same credit risk/ rating but different maturity periods.

A Treasury yield curve will therefore show treasury rates across different periods. If the yield curve is upward sloping, it means that long term rates are higher than short term rates because the curve starts by plotting short term rates and then moving long-term.