Based on the Expectations Theory of the Term Structure of Interest

question 35

True/False

Based on the expectations theory of the term structure of interest rates, a flat or inverted yield curve is most commonly interpreted to signal that that the economy will strengthen in the near future.

---

Definitions:

Signal-Detection Theory

The theory that perceiving or not perceiving a stimulus is actually a judgment about whether a momentary sensory experience is due to background noise alone or to the background noise plus a signal.

Classical Psychophysical

Relates to the traditional study of the relationships between physical stimuli and the sensations and perceptions they produce.

Sensitivity

The capacity to perceive, feel, or be aware of stimuli or changes in the environment; can also refer to the degree of responsiveness to social or emotional matters.

Weber Fraction

A principle that quantifies the perception of change in a given stimulus, stating that the just noticeable difference is a constant proportion of the original stimulus’s intensity.