Based on the expectations theory of the term structure of interest rates, a flat or inverted yield curve is most commonly interpreted to signal that that the economy will strengthen in the near future.

Question

Quizplus · Accepted Answer

The expectations theory of the term structure of interest rates suggests that a flat or inverted yield curve signals that investors expect future interest rates to decline, which is often interpreted as a prediction of economic slowdown or recession, not strengthening.

Based on the Expectations Theory of the Term Structure of Interest