True or False: If rates are expected to stay the same, the yield curve will be flat.

In the context of understanding the yield curve, the statement is true because when interest rates are expected to remain unchanged over time, there is typically no incentive for investors to prefer short-term bonds over long-term bonds or vice versa.

A flat yield curve signifies that the yields on bonds of varying maturities are approximately the same. This scenario often occurs when market participants expect stable economic conditions, leading to consistent interest rates in the near future. If rates are anticipated to stay the same, there is little perceived risk or return difference in holding bonds of different maturities, resulting in a flattened curve.

This understanding is grounded in the expectations theory of the yield curve, which suggests that long-term rates reflect the average of short-term future rates. In this case, if no changes are anticipated in short-term rates, long-term rates will also align with them, causing a flat yield curve.

While other factors like inflation expectations and risk premiums can influence the shape of the yield curve, the direct relationship between expected rate stability and a flat yield curve makes the statement accurate.