Assume That the One- Year Interest Rate Is on the Vertical

Multiple Choice

Assume that the one- year interest rate is on the vertical axis of the IS- LM model and that the yield curve is initially upward sloping. If financial market participants now expect the central bank will pursue a monetary expansion in the future, we would expect which of the following to occur?

A) The yield curve will become vertical.
B) The yield curve will become steeper.
C) The yield curve will become horizontal.
D) The yield curve will become downward sloping.
E) The yield curve will become flatter.