The yield on commercial paper minus the yield on U.S. Treasury bills
A)rises when financial markets believe that a recession is imminent.
B)falls when financial markets believe that a recession is imminent.
C)is an unreliable indicator of future economic activity.
D)is strongly affected by marginal federal income tax rates.

Question

Quizplus · Accepted Answer

The yield spread between commercial paper and U.S. Treasury bills typically rises when financial markets anticipate a recession, as investors demand higher risk premiums for holding commercial paper due to increased credit risk.

The Yield on Commercial Paper Minus the Yield on U