Multiple Effects on the Yield Curve:

Assume that

(1) investors and borrowers expect that the economy will weaken and that inflation will decline,

(2) investors require a small liquidity premium, and

(3) markets are partially segmented and the Treasury currently has a preference for borrowing in short-term markets.

Explain how each of these forces would affect the term structure, holding other factors constant. Then explain the effect on the term structure overall.