Which of the following statements is most correct?
A)a downward sloping yield curve implies that government securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities.
B)commercial paper is a primary source of short-term borrowing used by the U.S.government.
C)a decline in interest rates for long-term Treasury securities indicates an increase in investor long-run inflation expectations.
D)the establishment of the Federal Reserve System has caused the yield curve to always be upward sloping.

Question

Quizplus · Accepted Answer

A downward sloping yield curve indicates that investors have a lower expectation of future economic growth and inflation, which causes long-term interest rates to be lower than short-term interest rates. This is because investors prefer to invest in long-term securities when they expect lower economic growth and inflation in the future.

Which of the Following Statements Is Most Correct