The Yield Curve, as the Term Structure of Interest Rates

question 60

Essay

The yield curve, as the term structure of interest rates is said to be normal when it is upward sloping. However, it is sometimes "inverted" and slopes downward. What arguments are made to explain why the yield curve is not simply a flat line?

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Definitions:

Economic Outcomes

The results or consequences of economic activities and decisions on an individual, regional, or global level, including factors like growth, employment, and wealth distribution.

Natural Rate

The concept of a 'natural rate' often applies to unemployment, referring to the level of unemployment consistent with a stable rate of inflation, not precipitated by short-term economic fluctuations.

Money Supply

The sum of all financial resources available in an economy at a given moment, encompassing cash, coins, and funds in checking and savings accounts.

Growth Rate

The rate at which a company's or country's economic output or Gross Domestic Product (GDP) increases over a specified period.