Final answer:
Short-term interest rates have indeed been historically more volatile than long-term rates due to their greater sensitivity to immediate economic changes, as observed in historical patterns and fluctuations of interest rates on certificates of deposit. Option A is correct answer.
Step-by-step explanation:
The volatility of interest rates is a subject of significant interest in the study of economics and finance. In the context of certificates of deposit (CDs), historical data has demonstrated that short-term interest rates tend to be more volatile than long-term rates. This phenomenon is explained by the tendency of short-term rates to respond more sensitively to immediate changes in monetary policy and economic indicators than long-term rates, which are more influenced by long-term inflation expectations and economic growth forecasts.
Referring to historical trends, such as those observed in the early 1980s, high-interest rates were reflective of the high inflation rates prevalent in the United States during that time. As economies experience different phases of the business cycle, interest rates generally increase during expansions and decrease during recessions.
After examining the provided Figure 17.4, which highlights fluctuations in rates for six-month, one-year, and five-year CDs, these patterns can be observed. Notably, a steep decline in CD rates since the beginning of the Great Recession in 2008 is evident. This decline corroborates the historically observed pattern that short-term rates are more susceptible to shifts in the business cycle.
Therefore, based on the provided information and historical financial market behaviors, the correct answer to the question regarding the volatility of short-term versus long-term rates is Option A: True.