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Question

What is the explanation offered by the liquidity preference theory for the upward sloping yield curve shape?

Accepted Answer

The long term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

Answer

The long term rates must rise enough to get some borrowers to borrow long-term and some lenders to lend short-term.

Answer

The short term rates must rise enough to get some borrowers to borrow short-term and some lenders to lend long-term.

Answer

The short term rates must fall enough to get some borrowers to borrow long-term and some lenders to lend short-term.

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