An inverted yield curve or flattening of the yield curve is considered a good predictor of a (an):
A) rapidly expanding economy.
B) economic slowdown or contraction.
C) continuation of existing economic conditions.
D) anticipated major correction in the stock market.

Question

Quizplus · Accepted Answer

An inverted yield curve, where short-term interest rates are higher than long-term rates, is traditionally seen as a predictor of economic slowdown or recession. This is because it suggests that investors have little confidence in the near-term economy and expect lower interest rates in the future as a response to a weaker economy.

An Inverted Yield Curve or Flattening of the Yield Curve