The following figure shows the daily three-month treasury yield in September 2008. Refer to the following figure when answering
Figure 10.1: Daily Three-Month Treasury Yield: September 2008 (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Consider the data in Figure 10.1. What does the data for mid-September in this figure suggest?
A) Increasing investor confidence in the effectiveness of TARP led to smaller purchases of U.S. treasuries.
B) There was a rapid movement of assets from treasuries to stocks.
C) In the aftermath of the collapse of Lehman Brothers investors fled to the safety of short-term treasuries.
D) Prices of gold declined in line with short-term treasury yields.
E) GM and Chrysler declared bankruptcy.

Question

The following figure shows the daily three-month treasury yield in September 2008. Refer to the following figure when answering 
Figure 10.1: Daily Three-Month Treasury Yield: September 2008  (Source: Federal Reserve Economic Data, St. Louis Federal Reserve)
-Consider the data in Figure 10.1. What does the data for mid-September in this figure suggest?
A) Increasing investor confidence in the effectiveness of TARP led to smaller purchases of U.S. treasuries. 
B) There was a rapid movement of assets from treasuries to stocks. 
C) In the aftermath of the collapse of Lehman Brothers investors fled to the safety of short-term treasuries. 
D) Prices of gold declined in line with short-term treasury yields. 
E) GM and Chrysler declared bankruptcy.

Quizplus · Accepted Answer

The data in Figure 10.1 suggests that in mid-September, there was a flight to safety as investors fled to the safety of short-term treasuries in the aftermath of the collapse of Lehman Brothers. This is indicated by the sharp drop in the yield of the three-month treasury, which is a sign that investors were willing to accept lower returns in exchange for the safety of short-term treasuries.

The Following Figure Shows the Daily Three-Month Treasury Yield in September