1. Yield curve

(a) will have a downward slope if the inflation rate is expected to increase

(b) have been upward sloping during periods of high interest rates.

(c) are generally upward sloping.

(d) are plotted as real rather than nominal rates.

(e) have averaged a flat slope over time.

2. With the liquidity preference theory, a declining yield curve

(a) cannot be explained.

(b) follows the same forecasted spot rates as unbiased expectation.

(c) assumes no change in future interest rates.

(d) forecasts a steeper drop in future spot rates than the unbiased expectations.

(e) is really an increase in future rates due to the liquidity premium.