Economic Issues, on Keynes s Liquidity Preference Argument.

This can be explained by Keynes's liquidity trap, which was also proposed by speculative currencies.

When the prevailing interest rate is too low, people expect the interest rate to be **, so they abandon the bond and hold the currency, that is, increase the demand for money, which can minimize the loss of income and risk. Therefore, speculative money demand is an inverse function of interest rates, moving in the opposite direction to the level of interest rates. With l representing speculative money demand and i representing the interest rate level, the formula can be expressed as:

l3 = f(i)

When interest rates are low to a certain limit, the demand for speculative money will be infinite, and people will think that interest rates will not fall again, bonds** will not rise again, and at this time, anyone will only want to hold money. If bonds are retained, interest rates will rise at the expense of assets, so at this level of interest rates, no matter how much money is provided, it will be absorbed in its entirety, and monetary policy will be ineffective. This is Keynes's theory of flow preference.

The practical significance is to make a reference for people to make judgments about the changes in market currencies.

Liquidity preference theory is to explain the term structure of bond (financial asset) interest rates.

A theory. The theory is that the longer the maturity period of a bond, the greater the change, the less liquidity, and the greater its risk; To compensate for this liquidity risk.

The yield that investors demand on long-term bonds.

Higher yields than short-term bonds. The combination of liquidity preference theory and expectation theory can better explain the actual situation of the term structure of interest rates.

Concept Definition. It refers to the psychology that people would rather hold currencies with high liquidity but not generate profits than other assets that can generate profits but are difficult to realize. Its essence is people's demand for money, and we can understand liquidity preference as a psychological preference for money.

There are three motivations for people's liquidity preferences: trading motivations, prevention motivations, and speculative motivations. Among them, the demand for money brought about by the transaction motive and the precautionary motive is not directly related to the interest rate, it is a function of income, and it is directly proportional to income; The demand for money from speculative motives is inversely proportional to interest rates, because the higher the interest rate, the opportunity cost of holding money for speculation.

The higher it is.

Liquidity Preference Interest Rate Theory:

Keynes saw interest rates as a purely monetary phenomenon. Because money is the most liquid, it can be converted into any asset at any time. Interest is the reward for giving up liquidity for a certain period of time.

Interest rates are therefore determined by the supply and demand for money. Keynes postulated that there are two main types of assets in which people can store wealth: money and bonds.

Interest rates are determined by the supply and demand for money, which in turn depends on people's liquidity preferences. If people have a strong preference, the amount of money they are willing to hold increases, causing interest rates to rise when the demand for money is greater than the supply of money.

Conversely, when preference is weak, the demand for money falls and interest rates fall. Therefore, the interest rate is determined by both the liquidity preference curve and the money supply curve, the money supply curve m is determined by the monetary authority, and the money demand curve l=l1+l2 is a top-down left-to-right curve, and the more to the right, the more parallel to the horizontal axis.

The short-term is higher than the long-term short-lived.

Answer]: Keynes analyzed the various motivations of money demand in his liquidity preference theory, thus forming his own theory of money demand. He inherited the first two motives from Pigou and others, the motive of trading and the motive of prevention, and created his own spinal to make a throwing motorized field machine.

Transaction motivation refers to the desire to hold money for daily transactions, and can be further divided into income motivation and business motivation, the former corresponding to the individual, and the latter corresponding to the enterprise.

The precautionary motive, also known as the prudence motive, refers to the desire to hold money in order to cope with an emergency.

Speculative motivation refers to the motivation of people to hold money in order to profit from it according to the change in market interest rates.

The strength of the first two depends in part on the reliability and cost of the temporary borrowing balance when cash is needed, and on the relative cost of holding cash; The latter is directly related to the prevailing interest rate in the market, i.e. the rate of return on investment.

Keynes's liquidity preference theory holds that the velocity of money is ()aIt will fluctuate significantly and be trapped or pro-cyclical.

b.It fluctuates significantly and is counter-cyclical.

c.is constant.

d.Not a constant, but yes.

Correct answer: It is significantly volatile and pro-cyclical.

Answer] :d Kaises attributed people's motivation for holding coins to the motive of blind trading, the motive of prevention, and the motive of speculation. Among them, the transaction motive and the demand for goods to prevent high potato motive are the functions of the collector, and these two kinds of demand can be combined into one, that is, the first type of money demand, and the speculative motive of money demand is the subtraction function of the current interest rate level, which is called the second grinding hand block type of money demand.

According to Keynesian liquidity preference theory, the three main motivations for holding money are ()aThe unit of account, the store of value, the medium of exchange.

b.Trading motives, prevention motives, speculative motives.

c.Positive motivation, normative motivation, speculative motivation.

d.Trading motivation, prevention motivation, liquidity needs.

Correct answer: trading motives, noisy prevention of big opportunities, speculative motives.