According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to remain constant.
A flat yield curve is an indicator that interest rate would be constant. The long term and short term interest rate would be the same. A downward sloping yield curve can also be an indicator that there is an expectation of lower inflation rate in coming years.
If the yield curve is upward sloping, the short term interest rate would be lower than the long term interest rate
To learn more about bonds, please check: https://brainly.com/question/9970004
