n-year interest rate -  

• constant annual interest rate making present bond price equal to present value of future payments
• P2t = (final payment) / [(1+it)(1+it+1)] = (final payment) / (1+i2t)2
• (1+i2t)2 = (1+it)(1+it+1)
  • i2t ~ 0.5 (it+it+1)
  • 2 year interest rate approximately the average of the current and the following year's (expected) interest rate
• long term interest rates relate to current and future expected short-term interest rates

yield curve - relating long and short term interest rates  

• it+1 = 2i2t - it
• soft landing - mild slowdown back to natural output level
• monetary expansion needed to counteract an adverse shift in spending (negative IS shift)
  • would result in even lower interest
• upward sloping >> long-term interest rates higher than short-term >> financial markets expect higher rates in the future
• downward sloping >> financial markets expect lower interest rates in future
• expectations enough to change actions of financial market