According to the "Liquidity Preference" Theory of the Term Structure

question 10

Multiple Choice

According to the "liquidity preference" theory of the term structure of interest rates,the yield curve usually should be:

• A) inverted.
• B) normal.
• C) upward sloping
• D) a and b.
• E) b and c.

---

Definitions:

Substitution Effect

The change in demand for a good that results from a change in its price, making consumers more likely to purchase more of a less expensive alternative or less of a more expensive one.

Demand Curves

Graphs showing the relationship between the price of a good and the quantity demanded by consumers, typically downward-sloping.

Marginal Utility Data

Information regarding the additional satisfaction or use received by consuming one more unit of a good or service.

Prices

The monetary value expected, necessary, or allocated for the purchase of something.