What is typically true about an upward-sloping yield curve?

An upward-sloping yield curve is typically associated with expectations of economic growth. When investors expect the economy to expand, they anticipate higher interest rates in the future. This expectation leads to a situation where long-term bonds offer higher yields compared to short-term bonds, reflecting the perceived increased risks and opportunity costs of tying up funds for a longer period.

A strong economy tends to drive demand for borrowing, and as more borrowers enter the market seeking loans for investment, it puts upward pressure on interest rates. This expectation of higher future rates is what contributes to the upward slope of the yield curve. Investors are generally compensated for the risks associated with longer investment horizons, such as inflation and uncertainty.

Thus, the statement that an upward-sloping yield curve indicates economic growth expectations properly reflects the underlying dynamics of the financial markets and the relationship between interest rates and economic activity.