4. Which of the following is NOT a possible explanation of an inverted yield curve?

1. The market expects long bonds to be riskier.
2. The market expects the Fed to ease monetary policy in the near future.
3. The market expects a recession.
4. The market expects lower inflation rates in the future.

5.

An inverted yield curve is said to be a reliable predictor of recessions. When the yield curve inverts, this is when there is a _________ value of the _____________. (federal funds rate is a short-term rate, namely the target interest rate at which commercial banks borrow and lend their excess reserves to each other overnight)

1. negative, ten-year bond rate minus federal funds rate
2. positive, ten-year bond rate minus federal funds rate
3. positive, corporate bond rate minus federal funds rate
4. negative, corporate bond rate minus federal funds rate