An inverted yield curve predicts that short-term interest rates
A)are expected to rise in the future.
B)will rise and then fall in the future.
C)will remain unchanged in the future.
D)will fall in the future.

Question

Quizplus · Accepted Answer

An inverted yield curve occurs when the yield on long-term bonds falls below that of short-term bonds. This indicates that investors are more optimistic about the long-term future of the economy and expect short-term interest rates to fall in order to stimulate growth. Therefore, the best choice is D - short-term interest rates will fall in the future.

An Inverted Yield Curve Predicts That Short-Term Interest Rates