What are the Criticisms of liquidity preference Theory? Keynes held that interest is purely a monetary phenomenon as it is determined by the monetary forces of supply and demand.
The liquidity preference theory of interest explained. Liquidity means shift ability without loss. It refers to easy convertibility. Money is the most liquid assets. Money commands universal acceptability. Everybody likes to hold assets in form of cash money.
The liquidity preference theory of Interest has been propounded by J.M. Keynes. According to him, “Interest is the reward for parting with liquidity.” In the words of Keynes interest is a monetary phenomenon. Liquidity means the convenience of holding cash.
Liquidity ratio is the proportion of assets of bank recognized as “liquid” by the central bank to its total assets. The proportion can be prescribed and revised at the discretion of the central bank within a prescribed range.
Some of the most important features of Monetary Economy are Money is generally accepted as a medium of exchange, monetary economy has greater liquidity than the barter economy has and In a monetary economy, individuals also use money as an asset.