Question

4. What would you expect to happen to the spread between yields on commercial paper ant Treasury bills if the economy were to enter a steep recession?

Answer 1

Answer: I will expect the spread between the yields to WIDEN

Explanation: The spread between the yield on Treasury bills and commercial paper will widen if the economy were to enter a steep economy.

A downward slope in the economy increases credit risk. It leads to a situation whereby Investors demand a greater premium on debt securities which are subject to default risk.