LIQUIDITY PREFERENCE THEORY

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LIQUIDITY PREFERENCE THEORY 
In this epoch-making book. “The General Theory of Employment, Interest and Money”. the late Lord Keynes gave a new view of interest. According to him. “Interest is the reward for parting with liquidity for.a specified period:’ 6  with a given income has to decide first how much of this income he is going to consume and how much to save. The former will depend on what Keynes calls. the propensity tn consume. Given this propensity to consume. the individual will save a certain proportion of his given income. He now has to make another decision. How should he hold his savings? How much of his resources will he hold in saving?  How much of his resources will be hold in the fonn uf ready money (cash or non part with or lend). This latter decision will depend upon what Keynes calls hi “Liquidity preference,” Mca Log, Liquidity preference means the demand for money tu hold or the desire of the public to hold cash. In the words of Prof. Meyer. “Liquidity preference is the preference to have an equal amount ur cash rather than of claims against others

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LIQUIDITY PREFERENCE THEORY