True or False: A higher interest rate is normally associated with long-term loans.

The statement is false because higher interest rates are generally not associated with long-term loans. Typically, long-term loans tend to have lower interest rates compared to short-term loans. This is because lenders tend to offer lower rates for longer periods due to the anticipation that borrowers will be less likely to default over time, and they can assess the risk over a longer horizon.

In contrast, short-term loans often carry higher interest rates because they present a greater risk for lenders. The shorter time frame doesn’t allow for adequate assessment of the borrower’s ability to repay, contributing to the higher costs. Additionally, central banks may manipulate interest rates based on economic conditions which can influence the rates at which long-term loans are offered.

This distinction is pivotal in understanding the dynamics of interest rates in relation to the duration of loans, showing that what may seem intuitive about interest rates and loan lengths does not align with established financial principles.