Final answer:
The correct statements about an inverse yield curve are that it means yields for short-term bonds are greater than those for long-term bonds, and it suggests lower long-term borrowing costs, which could signal a recession. It does not pertain to the dollar prices of bonds, and while it has occurred before recessions, it's not considered normal.
Step-by-step explanation:
An inverse yield curve for U.S. government bonds occurs when the yields for short-term bonds are greater than the yields for long-term bonds. This phenomenon suggests that investors expect the economy to slow down in the future. Typically, the inverse yield curve is viewed as a reliable indicator of an upcoming recession. It suggests that investors have more confidence in the economy's short-term prospects than in the long-term, leading them to require a higher yield for short-term bonds due to perceived risks. Although an inverse yield curve has been observed in history before recessions, to state it is considered normal overlooks the contexts in which it occurs—it is not without concern.
Moreover, the statement that an inverse yield curve means the dollar prices of short-term bonds are greater than the dollar prices of long-term bonds is not accurate. The price of a bond is inversely related to its yield, but the inverse yield curve refers specifically to yields, not prices. Lastly, an inverse yield curve does indeed suggest that borrowing costs are lower in the long run than in the short run. This could indicate a lower demand for capital in the long term, presenting a risk of recession.