Why do interest rates change over time and what is a yield curve?

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Why do interest rates change over time and what is a yield curve?




Answer: The general level of interest rates varies over time with changes in the real rate of interest and expected inflation. The FISHER EFFECT says that the nominal interest rate equals the real rate of interest plus expected inflation. The YIELD CURVE is a snapshot of yields on bonds of different maturities at a point in time. Typically, it is upwardly sloping but can also be downward-sloping or humped.

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