Reference no: EM132486747

The cost of long-term borrowing is usually higher than the cost of short-term borrowing. The graph that shows the relationship between maturity and interest rates for U.S. Government's borrowings (Treasuries) is called "term structure of the interest rates" or "the yield curve." Shape of the yield curve is often used by economists to forecast future status of the economy

Question 1: Discuss why long-term rates are usually higher than short-term rates (upward yield curve)

Question 2: Discuss under what economic conditions long-term rates might not be higher than short-term rates (flat or inverted yield curve).