Long-term interest rates reflect expectations about future inflation.Inflation has varied significantly from year to year in the past,and as a result,long-term rates can be expected to fluctuate more than short-term rates.

Question

Quizplus · Accepted Answer

Long-term interest rates do reflect expectations about future inflation, but they also incorporate premiums for the risk of holding longer-term securities. These rates are generally less volatile than short-term rates because they average out expected future short-term rates, including fluctuations due to varying inflation expectations over time.

Long-Term Interest Rates Reflect Expectations About Future Inflation