Problem
1. Suppose you observe that short-term interest rates are higher than long-term interest rates.
a. What expectations must people have regarding future interest rates?
b. Why might the above relationship signal a recession? Why might it not?
c. What will the yield curve for this problem look like?
2. Why is the fact that stock prices follow a random walk a signal of stock market efficiency? What would have to be true if stock prices did not follow a random walk?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.