Changes in rate of interest do not very much affect the amount of money held for
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Explanation:
Liquidity preference is the preference to have an equal amount j ^ of cash rather than claims against others.” -Prof. Mayers
Determination of Interest:
According to liquidity preference theory, interest is determined by the demand for and supply of money. It is determined at a point where supply of money is equal to demand for money.
Demand for Money:
To Keynes, money is not only a medium of exchange, but also a store of wealth. Now, there arises a question, why people want to hold cash?
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