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.
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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.