In the early 1980s, when a recession raised concern about corporations' ability to repay debt, there was a dramatic increase in
A)the yield on medium-quality corporate bonds relative to the yield on long-term Treasury securities.
B)the yield on long-term Treasury securities relative to the yield on medium-quality corporate bonds.
C)the yield on six-month T-bills relative to the yield on long-term Treasury securities.
D)the yield on interest-earning checking deposits in commercial banks relative to the yield on six-month T-bills.

Question

Quizplus · Accepted Answer

During a recession, investors become more concerned about the risk of default on corporate debt, causing the yield on medium-quality corporate bonds to increase relative to the yield on safe-haven long-term Treasury securities. This reflects the higher perceived risk of investing in corporate bonds.

In the Early 1980s, When a Recession Raised Concern About