Question

Between January and December 1991 while the US economy was failing deeper into its recession, the interest rate on the treasury bill fells from 6.3% to 4.1%. Use the IS LM model to explain this pattern of declining output and interest rate. Which curved must have shifted ?
can you think of areason historically valid or simply imagined that this shift might have occurred .
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Answer 1

Answer:

• On March 22nd the spread between the yields on 3-month and 10-year Treasury debt securities inverted. This reversal of the normal relation between yields for short- and long-maturity Treasuries typically signals an impending recession. Each of the past three recessions has been preceded by similar yield spread inversions.

• The question often asked about this particular economic indicator is “Does it simply signal an impending recession, or does it somehow cause one to occur?” At least over the past thirty years inverted yield spreads have been followed by recessions. Depending on how long the inversion lasts and how large the reversal of yields is, the inversion can also be a major contributor to an economy’s decline into recession, something people tend to forget.

Answer 2

Answer is given in attachment................