Which of the following statements is true?
A)The yield curve slopes downward when the term spread is positive.
B)Researchers suggest that the smaller the term spread, the higher the chance is of a recession in the coming year.
C)The yield curve slopes upward when the term spread is negative
D)Researchers suggest that the larger the spread, the higher the chance is of a recession in the coming year.

Question

Quizplus · Accepted Answer

According to research, a smaller term spread (or a flatter yield curve) is associated with a higher chance of a recession in the coming year. Conversely, a steeper yield curve (or larger term spread) is associated with a lower chance of a recession in the coming year. Therefore, statement B is true. Statement A is incorrect because a downward-sloping yield curve (an inverted yield curve) occurs when the term spread is negative, not positive. Statement C is incorrect for the same reason. Statement D is also incorrect because it is the opposite of what research suggests.

Which of the Following Statements Is True