Liquidity Preference

Liquidity Preference theory is the conception that investors demand reasonably limited for securities with longer maturities, which entail greater risk, because they would prefer to hold income, which entails a smaller amount risk. Because interest rates tend to be volatile at any given time, the premium upon short- versus medium-term securities will probably be greater than the actual premium on medium- vs long-term securities. The liquidity preference relation may be represented graphically like a schedule of the bucks demanded at each different monthly interest.