To answer the multiple-choice questions, note down the answer on your answer page. You also need to offer a brief justification on your answer booklet for each one of your answers in this section. (minimum 100 words per question)

3. Assume that a yield curve is influenced by interest rate expectations and a liquidity premium. Assume the yield curve is initially flat. If liquidity suddenly was no longer important, the yield curve would now have a ____ (assuming no other changes). a. slight downward slope b. slight upward slope c. steep upward slope d. steep downward slope