Based on the most important economic forces that would affect the curve, what is the most likely (typical) shape of the interest rate term structure at a time after the business cycle has reached a peak and the economy is headed downward, possibly entering a recessionary period? A. A Dramatic Downward-sloping, inverted yield curve. B. A postiive-sloping yield curve. C. A flatter yield curve, possibly even mildly inverted And this one as well: After the economy slips into a recession, it is typical for the yield curve to: A. Shift upward in a parallel manner. B. Shift downward and flatten or invert C. Shift downward and steepen. Thanks fellas!
A for first, B for second. I think I have heard countless news reports about the inverted yield curve being a bad sign because it’s not good when short term rates pay higher than long term ones.
C for both? flattens with slight inversion due to expected lower rates in the future, though no change to short term rates shifts downward / steepens with lower mid term expectations and short term rate cuts
C for both. th123 can you go a little more into depth on how you came up with the answer? Stalla did not do a good job teaching this
anyone?
C and B? For the first one, think of a business cycle, where a company (industry) in a pioneer state have a steep upward sloping curve and mature industry is towards the top. The curve at the top (mature state) is flatter and starts to tilt downward as it approaches a recessionary environment. For the second one, think of seeing a light at the end of the tunnel (if it helps). After a recessionary environment, you will start to see an improving environment and hence the curve will flatten from a downward slope and begin to invert itself to an upward sloping curve.
c and b
I am guessing on C and C here.
The answer are both C lol, I just didn’t understand why. But I think I got it now.
C, and B. For the second B should be the answer, because as economy slips in recession, the spreads become large for short term, so if spreads become large for short term, then the difference between long term and short term spreads contracts. The yeild curve should flatten