According to the liquidity preference theory of interest, the interest rate is the "price" that must be paid to induce money holders to surrender a perfectly liquid asset.

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The liquidity preference theory, proposed by John Maynard Keynes, suggests that the interest rate is indeed the "price" paid to convince holders of money to part with their liquid assets, as they prefer liquidity for the assurance it provides against uncertainties.

According to the Liquidity Preference Theory of Interest, the Interest