Question: 1. What is an interest rate? Why do we observe a number of interest rates in the economy rather than a single interest rate? What

1. What is an interest rate? Why do we observe a number of interest rates in the economy rather than a single interest rate? What are some of the reasons interest rates vary? What are some theories concerning the term structure of interest rates and what do they imply about the yield curve? Figure 1 Price Interest Rate s S D D Bonds Loanable Funds

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