The yield curve tends to be inverted:
A) at the trough of the business cycle.
B) during periods of rapid inflation.
C) at the end of a contractionary period.
D) at the peak of the business cycle.
E) at the beginning of an expansionary period.

Question

Quizplus · Accepted Answer

The yield curve tends to be inverted at the peak of the business cycle. This is because investors become cautious and demand higher returns on short-term investments as they anticipate an economic slowdown in the near future. As a result, short-term interest rates rise above long-term rates, leading to an inverted yield curve.

The Yield Curve Tends to Be Inverted