Which of the Following Explains Why the Size and the Direction

Multiple Choice

Which of the following explains why the size and the direction of the gap between long- and short-term interest rates is a predictor of stages in the business cycle?

A) The time period with higher rates is likely to have higher economic activity than the time period with lower rates.
B) The time period with higher rates is likely to have slower economic activity than the time period with lower rates.
C) When the rates are unequal, the economy is in expansion or contraction; when the rates are equal, the economy is in a peak or trough.
D) When the rates are equal, the economy is in expansion or contraction; when the rates are unequal, the economy is in a peak or trough.