Liquidity Preference refers to the desire of individuals and businesses to hold cash or easily convertible assets rather than investing in less liquid forms of capital. This concept, introduced by economist John Maynard Keynes, suggests that people prefer liquidity for three primary motives: transaction motive, precautionary motive, and speculative motive.
Overall, liquidity preference plays a crucial role in determining interest rates and influencing monetary policy, as higher liquidity preference can lead to lower levels of investment in capital assets.
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