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Sagot :
Liquidity preference theory is a theory of demand and supply that is relevant only for the short-run economy.
What is a short-run economy?
A short-run economy is a time duration where one input is constant, that is, fixed whereas other inputs tend to change, that is, variable. In that time, the economy of a country variates depending on the duration of a time period.
Liquidity preference theory states that an investor demands a greater premium or rate of interest on those securities which are having longer maturity periods and keeping all the factors unchanged, the investor wants to have readable cash or other assets that can be easily converted into liquid cash. This theory is ideally suitable for a shorter-run economy where demand and supply related to money are balanced by making the rates of interest adjusted in that respect.
Therefore, the short-run economy can apply the theory of liquidity preference.
Learn more about the liquidity preference theory in the related link;
https://brainly.com/question/13017356
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