Series 3: Exercise

Exercise

Answer true or false.

1. 1. _____ The yield curve is a generally reliable indicator of fiscal policy.
2. 2. _____ A steepening, upward-sloping yield curve is a useful predictor of falling interest rates.
3. 3. _____ A flattening yield curve always indicates a tightening monetary policy.

Answers

1. 1. False. The yield curve is a reliable indicator of monetary policy. When the Fed manipulates the federal funds rate to stimulate or brake the economy, the yield curve will widen or narrow. It may also invert. This is because monetary policy has its strongest influence on short-term interest rates. The yield curve, used in conjunction with other economic indicators, is a useful tool to forecast