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True, False, or Uncertain and Explain: According to the “liquidity preference theory” of the yield curve,...

True, False, or Uncertain and Explain:

According to the “liquidity preference theory” of the yield curve, if the yield curve is flat, rates investors expect to be available in the future are the same as current rates.

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Answer #1

FALSE.

As per Liquidity Preference Theory, if the yield curve is flat, it indicates that investor is unsure about about future rates and inflation. A flattening yield curve indicates that future long term rates are falling more than the future short term rates.

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