j.docx - Keynes Liquidity Preference Theory of Interest In general according to Johnson(2017 the Keynesian theory holds that aggregate demand will not

j.docx - Keynes Liquidity Preference Theory of Interest In...

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Keynes’ Liquidity Preference Theory of Interest In general, according to Johnson (2017), the Keynesian theory holds that aggregate demand will not always meet the supply required. Keynes describes the rate of interest as the reward for parting with liquidity for a particular period of time. According to the Keynesian liquidity preference theory of interest, the rate of interest is influence by the supply and demand for money (Lavoie &Reissl, 2018). This theory relates to the study of the impact of macroeconomic factors on the financial performance of manufacturing firms in Kenya (Lavoie & Reissl, 2018). This is because it illustrates the element of parting with liquidity for a given period. In this case, the parting of liquidity is on the part of financial institutions which may extend loans to the manufacturing firms. As a result, the reward is given to the financial institutions in the form of interest. As noted by Tily (2018), the Keynesian liquidity preference theory of interest is also relevant to

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