1. Suppose that liquidity and interest rate expectations are both important for explaining the shape of a yield curve, what does a flat yield curve indicate about the market perception of future interest rates?
2. Interpret the following statements:
3. An upward-slopping yield curve persists because many investors stand ready to jump into the stock market.
4. The shift from an up-ward-slopping yield curve to a downward-slopping yield curve is sending a warning about a possible recession.
5. Explain the meaning of efficient financial markets. Why might expect markets to be efficient most of the time?