Consider a Yield Curve That Has Taken into Consideration Both

Multiple Choice

Consider a yield curve that has taken into consideration both the expectations theory and the liquidity premium theory. Assume the yield curve is initially downward sloping. If liquidity premium theory is no longer important, the yield curve you would expect to see would be:

A) more steeply downward sloping
B) more upward sloping
C) less steeply downward sloping
D) flat
E) Either c or d can happen.