Yield Curve

One of the problems in the portfolio management is explaining that a country is going to a recession in the next 12 months and that currently the yield curve is flat . The question is asking what would happen to the yield curve if the country goes into a recession. The answer is B because of the below explanations which to me makes not much sense because i thought that when a country enters a recession , yield curve is downward sloping.

  1. If Carlisle’s prediction about the economy of Country #3 is realized, the yield curve in Country #3 will most likely:

  2. A remain flat

  3. B become upward sloping.

  4. C become downward sloping.

  5. B is correct. e yield curve in Country #3 is currently at (Exhibit 1), and Carlisle predicts a recession. During a recession, short-term rates tend to be lower because central banks tend to lower their policy rate in these times. However, the impact of monetary policy on longer-term rates will not be as strong because the central bank will usually be expected to bring short-term rates back to normal as the recession recedes. us, the slope of the yield curve will likely become upward sloping during the recession.

Bold portion is the key.

Downward sloping is an indicator of country is probably getting into a recession.

I doubt they might be talking about the country is already in a recession or is gradually coming out of a recession