During or near peaks of business activity, yield curves that are flat or downward sloping (possibly with humps) often are prevalent.

Question

Quizplus · Accepted Answer

This is because in high business activity periods, there is often more demand for short-term borrowing for investment and expansion, leading to lower short-term interest rates. This can result in a flattening or downward slope of the yield curve, as longer-term interest rates do not decrease at the same rate as shorter-term rates. Humps in the curve could occur if there are specific factors affecting certain maturities, such as government policy.

During or near Peaks of Business Activity, Yield Curves That