An inverted yield curve is often said to predict a slowdown in economic activity because a. it implies that term premia for long-term bonds have declined, leading to more stringent borrowing conditions and therefore a drop in aggregate demand.
b. according to the Expectations Theory (i. e. assuming term premia are constant), lower long term rates imply that current short rates are too high, which will slow down the economy in the future.
c. according to the Expectations Theory (i. e. assuming term premia are constant), markets expect a slowdown in aggregate demand in the future to which monetary policy will react by lowering interest rates.
d. it implies that term premia for long-term bonds have increased due to increased inflation risk which is itself an indicator of economic troubles.