If the Yield Curve Is Downward Sloping, What Is the Yield

question 34

Multiple Choice

If the yield curve is downward sloping, what is the yield to maturity on a 30-year Treasury bond relative to a 10-year Treasury bond?

• A) The yield on the 10-year bond must be greater than the yield on the 30-year bond.
• B) The yield on the 10-year bond must be less than the yield on the 30-year bond.
• C) The yields on the two bonds are equal.
• D) We need to know the other risk premiums to answer this question.

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Definitions:

Price Discrimination

An approach where the same goods or services, either identical or very similar, are priced differently by the same seller in distinct markets.

Inelastic Demand

A situation where the demand for a good or service changes little when its price changes, indicating consumers' lack of sensitivity to price adjustments.

Price Discrimination

Price discrimination involves selling the same product or service at different prices to different groups of consumers, often based on factors like age, location, or purchase quantity.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, representing their economic benefit.