If the interest rate on three-month Treasury securities is 5 percent and the interest rate on ten-year Treasury securities is 6 percent, then the odds of a recession are
A)less than 15 percent.
B)about 25 percent.
C)about 40 percent.
D)about 80 percent.

Question

Quizplus · Accepted Answer

The yield curve, which is the difference between short-term and long-term interest rates, is often used as a predictor of economic recessions. In this case, with long-term rates (6 percent) higher than short-term rates (5 percent), the yield curve is upward sloping, which typically indicates a healthy economy. Historically, an inverted yield curve (where short-term rates are higher than long-term rates) is a stronger predictor of an impending recession. Therefore, with an upward sloping yield curve, the odds of a recession would be considered lower, aligning with choice A.

If the Interest Rate on Three-Month Treasury Securities Is 5