Final answer:
The term structure of interest rates usually has an upward-sloping shape, known as a normal yield curve. Long-term interest rates are higher than short-term interest rates.
Step-by-step explanation:
The term structure of interest rates usually has an upward-sloping shape, known as a normal yield curve. This means that long-term interest rates are higher than short-term interest rates.
One reason for this shape is that investors generally demand higher compensation for locking their money up in long-term investments compared to short-term investments. There is also an expectation that the economy will grow and inflation will rise over time, which leads to higher long-term interest rates.
For example, if you were to compare the interest rates on a 10-year government bond and a 1-year government bond, the 10-year bond would typically have a higher interest rate. This reflects the higher risk and uncertainty associated with a longer time horizon.