1.   A humped yield curve is explained by the combination of a descending yield curve plus an upward-sloping liquidity preference curve.

2.   Keynesians and monetarists disagree over the shape and stability of the liquidity preference curve.

3.   Thus the stress on money as a means of storing wealth and the close substitutability of money and other financial assets give an elastic liquidity preference curve.

4.   This is simply the result of a downward sloping liquidity preference curve.

5.   The more elastic the liquidity preference curve, the more idle balances will fall.

6.   Nevertheless, unless the liquidity preference curve is totally elastic, some financial crowding out will occur.

7.   A more serious Keynesian criticism is that the liquidity preference curve is unstable.