economics hard MCQ

In bond market terminology, what does an 'Inverted Yield Curve' typically signal about the future state of the economy?

  1. Rapid economic expansion and high inflation
  2. An impending economic recession or slowdown
  3. Stable, long-term sustainable growth
  4. A sudden surge in foreign direct investment

Answer: An impending economic recession or slowdown

Normally, long-term bonds offer higher yields than short-term bonds to compensate for time and inflation risk (a normal upward-sloping curve). An inverted yield curve occurs when short-term interest rates exceed long-term rates, indicating that investors expect future economic weakness, leading central banks to cut rates aggressively. It is a highly reliable historical predictor of recessions.

Topic Financial Markets - Capital Market
Exam Relevance UPSC Prelims, Banking, SSC
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