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


Answer:

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.