Liquidity preference

The preference for liquidity ( eng. Liquidity preference ) is a macroeconomic concept denoting the indicator of for cash , treated as liquidity . The concept was proposed by John Maynard Keynes in the book " The General Theory of Employment, Interest, and Money, " to explain the dependence of the interest rate on supply and demand for cash. Keynes proceeded from the assumption that there are two types of assets in which households make investments (invest goods) - money and securities. The total wealth in the economy is equal to the total amount of money and securities (the sum of the market supply of money and the market supply of securities). The return on investment indicator for cash as an alternative type of asset, in contrast to securities, is zero. With an increase in the rate of return on investment for securities, the expected return on ownership of cash falls in line with the increase in the expected return on securities. This causes the transfer of investments from cash to securities. Thus, the demand for cash is inversely proportional to the rate of return on investment.