We are MOST likely to see a recession if interest rates on long-term bonds are _____, and interest rates on short-term bonds are _____.
A) 8%; 6%
B) 5%; 5%
C) 7%; 7%
D) 2%; 4%

Question

Quizplus · Accepted Answer

When interest rates on long-term bonds are lower than short-term bonds, it is referred to as an inverted yield curve. This is a signal that investors believe the economy is going to experience a downturn in the near future. Historically, inverted yield curves have preceded every recession in the US since 1950. Therefore, D is the most likely choice for a recession as the interest rates on long-term bonds are lower (2%) than short-term bonds (4%).

We Are MOST Likely to See a Recession If Interest