Question of the Week

A diagram of yields on debt instruments shows that short-term interest rates are higher than long-term interest rates. What is this called, and what does it indicate?

a) An inverted yield curve indicating an unhealthy economy
b) A flat yield curve indicating slow growth
c) A positive yield curve indicating prosperity
d) A balanced yield curve indicating rapid expansion in the short term


The correct answer is a.

An inverted—or negative—yield curve is an unusual situation that generally indicates an unhealthy economy marked by low confidence and high inflation.