An Inverted Yield Curve Is a Valuable Forecasting Tool Because

question 121

Multiple Choice

An inverted yield curve is a valuable forecasting tool because:

• A) the yield curve usually is inverted so it reflects a growing economy.
• B) the yield curve seldom is inverted and can signal an economic slowdown.
• C) investors are expecting higher short-term rates in the future, and this usually signals an economic slowdown.
• D) inverted yield curves signal better economic times are expected.

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Definitions:

Autonomous Investment

Investment in an economy that does not depend on the current level of income or production, often driven by innovation or governmental policy.

Aggregate Expenditure

The total amount of spending in the economy that includes consumption, investment, government purchases, and net exports.

Simple Spending Multiplier

The ratio of a change in real GDP demanded to the initial change in spending that brought it about; the numerical value of the simple spending multiplier is 1/(1 + MPC); called “simple” because only consumption varies with income.

Marginal Propensity

Describes the portion of additional income that an individual is willing to spend on consumption rather than saving.