The liquidity preference theory is Keynes's view that the rate of interest is set in the market for money balances.

Question

Quizplus · Accepted Answer

The liquidity preference theory states that the rate of interest is determined by the supply of and demand for money balances in the market, with individuals and firms holding money for different reasons, such as transactions, precautionary savings, and speculation. Keynes argued that changes in the demand for money could lead to changes in interest rates, even in the absence of changes in the supply of money or changes in the productivity of capital.

The Liquidity Preference Theory Is Keynes's View That the Rate