.Suppose that todays 1 year rate is 3%, and the market expects next years 1 year rate to be 2%.

1.According to the expectations theory of the term structure of interest rates what would be todays 2 year rate?

2. Plot the yield curve corresponding to your results. Be sure to label both axes appropriately.

3. What is likely going on in the economy that could have produced this expectation of future short term rates to be lower than todays short term rate?