This article examines the interest rates and inflation movement over a period of time and the reasons for these fluctuations. The main objective is to analyze how changes in the yield curve and expected inflation affect the gaps between short-term nominal and real interest rates between the period 1970-2001. The analysis includes the comparison of short-term nominal interest rate and inflation, long-term nominal rates and inflation, maturity premium and inflation and the short-term and the long-term interest rates.

In this article, we study the movements of short- term nominal and long-term nominal and real interest rates between the period 1970-2001. In addition, we examine how changes in real GNP and the long-term interest rate affected investment demand in the period 1970-2001.

While studying the movements of interest rates of these years, we hope to accomplish a number of goals. 1. By looking at the data on the Indian economy, we want to enhance our understanding of how changes in the yield curve and expected inflation affect the gaps between short-term nominal and real interest rates.

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