The liquidity preference theory suggests that the shape of the yield curve is determined by the supply and demand for funds within each maturity segment.

Question

Quizplus · Accepted Answer

The liquidity preference theory suggests that longer-term interest rates are generally higher than shorter-term rates because investors demand a premium for the increased risk of holding longer-term securities, not because of the supply and demand within each maturity segment.

The Liquidity Preference Theory Suggests That the Shape of the Yield