What characteristic does a yield curve typically have?

A yield curve typically illustrates the relationship between interest rates and the time to maturity of debt securities, such as government bonds. The correct choice of being usually upward sloping reflects the normal market condition where longer-term securities have higher yields compared to short-term securities. This phenomenon is often due to the fact that investors demand a premium for taking on the increased risk and uncertainty associated with longer maturities, which include potential changes in interest rates, inflation, and overall economic conditions over time.

Under this normal upward-sloping curve, short-term rates are generally lower because they are less risky. As the maturity lengthens, the additional risks typically translate into higher yields, thus creating a gradual incline on the curve.

The various other characteristics presented do not align with the typical behavior of yield curves in healthy economic conditions. For instance, a downward-sloping yield curve, which might indicate the market's expectation of declining interest rates, is associated with possible economic contraction. A flat yield curve suggests that there is little difference in yield across different maturities, often signaling uncertainty about future economic conditions. Finally, a yield curve that varies greatly every day does not provide a coherent view of interest rate movements and does not usually reflect stable market conditions. Therefore, the general tendency of yield