Q:

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

A:
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.
   

RELATED FAQS

  1. Why are the term structure of interest rates indicative of future interest rates?

    Learn why economists believe the term structure for interest rates reflects investor expectations for future interest rates ...
  2. Below is an example of US Treasury yields for various maturities ...

    The correct answer is b. A normal yield curve chart shows long-term debt instruments having higher yields than short-term ...
  3. How can the yield curve help me make investment decisions?

    Learn about the yield curve, and discover why this chart is an important economic indicator. How do Treasury bond yields ...
  4. What is the difference between term structure and a yield curve?

    Understand the difference between the term structure of interest rates and a yield curve, if any. Learn what the yield curve ...
  5. What is the current yield curve and why is it important?

    Understand what the current yield curve represents, and learn how market analysts commonly interpret various changes in the ...
  6. What does the yield curve actually predict?

    Find out what an inverted yield curve represents, how it has performed as a leading indicator and why it appears to hold ...
RELATED TERMS
  1. Normal Yield Curve

    A yield curve in which short-term debt instruments have a lower ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments ...
  3. Flat Yield Curve

    A yield curve in which there is little difference between short-term ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  5. Yield Elbow

    The point on the yield curve indicating the year in which the ...
  6. Humped Yield Curve

    A relatively rare type of yield curve that results when the interest ...

You May Also Like

Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center