A downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs is called
A) normal yield curve.
B) inverted yield curve.
C) flat yield curve.
D) none of the above.

Question

Quizplus · Accepted Answer

An inverted yield curve is characterized by lower long-term borrowing costs than short-term borrowing costs. This is a rare phenomenon and is considered a warning sign of an upcoming recession. A normal yield curve has higher long-term borrowing costs, indicating that investors expect economic growth and higher inflation in the future. A flat yield curve has similar borrowing costs across different maturities.

A Downward-Sloping Yield Curve That Indicates Generally Cheaper Long-Term Borrowing