Nominal interest rates and yield curves Economic forecasters predict that the rate of inflation will hold steady at $2\%$ per year indefinitely. The table, $,$ shows the nominal interest rate paid on the Treasury securities having different maturities.

a$.$ Approximately what real interest rate do Treasury securities offer investors at each maturity?

b$.$ If the nominal rate of interest paid by every Treasury security suddenly dropped by $1\mathrm{.}5\%$ without any change in inflationary expectations, what effect, if any, would this have on your answers in part a$?$

c$.$ Using your findings in part a$,$ select the appropriate yield curve for U$.$S$.$ Treasury securities$.$ Describe the general shape and expectations reflected by the curve.

d$.$ What would a follower of the liquidity preference theory say about how the preferences of lenders and borrowers tend to affect the shape of the yield curve in part $c?$

e$.$ What would a follower of the market segmentation theory say about the supply and demand for long$-$term loans versus the supply and demand for short$-$term loans given the yield curve in part $c?$

Data table

a$.$ The real rate of interest on the

example

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$($Click on the icon here $$ in order to copy the contents of the data table below into a spreadsheet.$)$

$\backslash$table$[[$Period$,\backslash$table$[[$Nominal rate of$],[$return$]]],[3$ months,$5\%$