Question on: JAMB Economics - 2002
Liquidity preference refers to the?
A
needs to borrow money for short periods to meet some temporary crises
B
wish to hold more funds for precautionary purpose
C
need to increase the money supply in order to lower the interest rate
D
demand to hold money as assets rather than as stocks
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Correct Option: D
Liquidity preference, in economics, refers to the desire to hold assets in a liquid form, such as cash. This is driven by several motives, including:
- Precautionary motive: Holding cash for unexpected expenses or emergencies.
- Transactions motive: Holding cash for day-to-day purchases.
- Speculative motive: Holding cash to take advantage of anticipated changes in interest rates or asset prices.
Option B, "wish to hold more funds for precautionary purpose," accurately captures the essence of liquidity preference by focusing on the desire to hold liquid assets for unforeseen circumstances.
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