图

问题如下：

Carlisle predicts that Country #3 will slip into a recession next quarter. She thinks it will be short-lived, lasting only 12 months or so.

Selected data on Country #3 are presented:

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

选项：

A.

remain flat.

B.

become upward sloping.

C.

become downward sloping.

解释：

The yield curve in Country #3 is currently flat (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. Thus, the slope of the yield curve will likely become upward sloping during the recession.