Liquidity Preference theory states that individuals prefer ___________ for transaction motive.

holding assets in the form of bonds and shares

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holding assets in the form of cash

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creation of immovable property

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assets in the form of jewelry

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Solution

The correct option is A holding assets in the form of cash
Liquidity Preference Theory was given by Keynes. Simple logic behind this is, every individual would like to have money for different purposes and liquidity is the convince of holding cash. So the theory highlights the idea that individuals are more prone to hold assets which have higher liquidity or in the form of cash.

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Similar questions

_______________ means the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, bills of exchange, land, building, gold etc.

Assuming that the Debt-Equity Ratio is 2 : I, state, giving reasons, which of the following transactions would (I) Increase; (ii) Decrease; (ii.) Not alter the Debt-Equity Ratio :

(i) Issue of new shares (Preference/Equity) for Cash.

(ii) Issue of new shares (Preference/Equity) against purchase of fixed asset.

(iii) Buy-back of its own shares by a Company.

(iv) Issue of Debentures for Cash.

(v) Issue of Debentures against purchase of fixed asset.

(vi) Repayment of Long-term Borrowings.

(vii) Conversion of Debentures into Equity Shares/Preference Shares.

(viii) Sale of a fixed asset at par.

(ix) Sale of a fixed asset at profit.

(x) Sale of a fixed asset at loss.

(xi) Purchase of a fixed asset on a credit of 2 months.

(xii) Purchase of a fixed asset on long-term deferred payment basis.