Economists define liquidity as
A) the difference between the return on the asset and the return on a long-term U.S. Treasury bond.
B) the fraction the asset makes up of an investor's portfolio.
C) the ease with which an asset can be exchanged for money.
D) the difference between the total demand for an asset and the total supply of the asset.

Question

Quizplus · Accepted Answer

Liquidity is defined as the ease with which an asset can be exchanged for money. In other words, it is the ability of an asset to be converted into cash quickly without a significant impact on its price.

Option A is incorrect as it refers to the difference between the returns of an asset and a long-term US treasury bond which is irrelevant to liquidity.

Option B is incorrect as it refers to the portion of an investment portfolio that an asset comprises of which is irrelevant to liquidity.

Option D is incorrect as it refers to the gap between the demand and supply of an asset which is not equivalent to liquidity.

Economists Define Liquidity as