You Notice That Forward Rates Are Below the Spot Rate

question 4

Short Answer

You notice that forward rates are below the spot rate. What can you say about the yield curve?

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Definitions:

Long-run Equilibrium

A state in economic analysis where all inputs can be adjusted, market supply meets demand, and all firms in the market earn normal profit, indicating no entry or exit from the industry.

Low Point

Refers to the lowest level or value that something can reach, often used in the context of prices, rates, or economic indicators.

Average Total Cost Curve

A graphical representation showing how the total cost per unit of output varies with the level of output, typically U-shaped due to economies and diseconomies of scale.

Long-run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to make adjustments, resulting in no economic profit in perfect competition.