Final answer:
A downward sloping yield curve is often associated with an upcoming economic downturn, not a boom, and is different from the downward slope of the Phillips Curve, which shows the short-term tradeoff between unemployment and inflation.
The given statment is False.
Step-by-step explanation:
Understanding the Yield Curve
The statement that a downward sloping yield curve indicates an imminent economic boom is false. Typically, a downward sloping yield curve, where long-term debt instruments have a lower yield than short-term debt instruments, is associated with a potential economic downturn or recession. This market phenomenon is watched closely by economists and investors as it is often considered a predictor of economic performance.
However, the Phillips Curve, which relates unemployment and inflation, is a different economic concept than the yield curve. And while it does slope downward, indicating an inverse relationship between unemployment and inflation in the short run, it is imperative to acknowledge that it can shift over the long term due to changes in aggregate supply. This shift can lead to scenarios where unemployment and inflation are both higher or both lower, as has been observed historically.
Keynesian Policy and Economic Health
Keynesian economic policies suggest that during a recession, expansionary fiscal policy, such as tax cuts or increased government spending, can be used to shift aggregate demand to the right, thereby moving the economy towards potential GDP and full employment.