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Could you please help me understand liquidity preference and explain the Liquidity Preference Curve to me?
I don’t think liquidity preference is relevant to AB. However, yields on deposits will need to rise as the term to maturity increases, as by investing for a longer period the investor requires compensation for deferring the use of cash invested. The longer the period for which they are deprived of cash, the more compensation they require because if their money is locked up for longer, flexibility decreases and risk increases.
I don’t understand this…….. I found this term in an explanation to the question which said interest rate would reduce as money supply increases and this means there’d be a movement along the curve and not shift.
What do I dooo to understandd? and are you sure it is not part of AB 🙁
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