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.