Under the Liquidity Premium Theory,the Expectation That Future Short-Term Rates

question 30

Multiple Choice

Under the liquidity premium theory,the expectation that future short-term rates will be constant results in a yield curve that

• A) is flat.
• B) slopes upward.
• C) slopes downward.
• D) is flat, slopes upward, or slopes downward, depending on the size of the term premium at each maturity.

---

Definitions:

Nonrival

A characteristic of a good or service where one person's consumption does not diminish the ability of another to consume it as well.

Excludable

A property of a good or service that allows its owner to prevent others from using it without permission.

Artificially Scarce Good

A good that has its availability limited by design or through artificial means, rather than through natural scarcity.

Cable Television

A system for delivering television programming to consumers via radio frequency signals transmitted through coaxial cables.