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Initially, the yield curve is flat as shown below. (1) If bond investors decide that 1-year bonds are no longer as desirable an investment as
Initially, the yield curve is flat as shown below. (1) If bond investors decide that 1-year bonds are no longer as desirable an investment as they were previously, draw the new yield curve assuming expectations theory holds. (5 points) interest rate (%) 0 5 10 15 20 25 30 years to maturity (2) Based on the yield curve you obtain in (1), which phase of the business cycle do you think this economy is entering? (1 point)
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