To begin with, multiple reasons can be put down while explaining the 4 points. You need remember that at the end of the day, the four points are a conclusion of a study and for the exam, you need to remember them. Logic :
If both Fiscal and Monetary Policies are stimulative, ST interest rates fall, production increases, economy expands, there is growth and then inflationary expectations get built up in the long end of the YC. Hence, upward sloping and Steep and vice versa for restrictive policies.
When monetary policy is restrictive and fiscal policy is stimulative, the yield curve may flatten due to conflicting effects on the economy. Restrictive monetary policy, such as raising interest rates or reducing the money supply, can lead to higher short-term interest rates, while stimulative fiscal policy, such as increased government spending or tax cuts, can lead to higher inflation expectations and higher long-term interest rates. These conflicting effects can result in a flat yield curve, where short-term and long-term interest rates are similar. The flat yield curve can also indicate that the economy is in a period of uncertainty, where investors are uncertain about the direction of economic growth and inflation.
Stimulative monetary policy, such as lowering interest rates or increasing the money supply, can lead to increased borrowing and investment, which can stimulate economic growth. This increased economic activity can lead to higher inflation expectations and higher long-term interest rates, which can steepen the yield curve. At the same time, restrictive fiscal policy, such as reduced government spending or higher taxes, can lead to decreased demand for goods and services and slower economic growth. This decreased economic activity can lead to lower short-term interest rates, which can also contribute to a steeper yield curve. The combination of these effects can lead to a moderately steep yield curve
To begin with, multiple reasons can be put down while explaining the 4 points. You need remember that at the end of the day, the four points are a conclusion of a study and for the exam, you need to remember them. Logic :
When monetary policy is restrictive and fiscal policy is stimulative, the yield curve may flatten due to conflicting effects on the economy. Restrictive monetary policy, such as raising interest rates or reducing the money supply, can lead to higher short-term interest rates, while stimulative fiscal policy, such as increased government spending or tax cuts, can lead to higher inflation expectations and higher long-term interest rates. These conflicting effects can result in a flat yield curve, where short-term and long-term interest rates are similar. The flat yield curve can also indicate that the economy is in a period of uncertainty, where investors are uncertain about the direction of economic growth and inflation.