The existence of an upward sloping yield curve proves that the liquidity preference theory is correct,because an upward sloping curve necessarily implies that firms must offer a maturity risk premium in order to induce investors to lend for longer periods.

Question

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An upward sloping yield curve can result from various factors, not just the liquidity preference theory. It can also reflect expectations of higher future interest rates or inflation, among other factors, not solely a maturity risk premium.

The Existence of an Upward Sloping Yield Curve Proves That