Question

Why do individuals undertake contracts? Does the concept of liquidity preference alleviate all kinds of uncertainties?

Answer 1

Why do individuals undertake contracts?

Answer:

A contract is essentially a consent to do or not to accomplish something. Saying a contract is legitimate methods it's lawfully official and enforceable.

Advantages of a contract:

• Clearness in business connections, understandings, and privileges of gatherings.
• Keeping away from potential contract questions and case.
• Forestalling confusion of interchanges and understandings.

Does the concept of liquidity preference alleviate all kinds of uncertainties?

Answer: To a certain extent, liquidity preference alleviate uncertainties as:

Demand for liquidity is dictated by three thought processes:

• the exchanges intention: individuals like to have liquidity to guarantee fundamental exchanges, for their salary isn't always accessible. The measure of liquidity demanded is dictated by the degree of pay: the higher the salary, the more money demanded for doing expanded spending.
• the prudent intention: individuals like to have liquidity on account of social surprising issues that need abnormal expenses. The measure of money demanded for this reason increments as pay increments.
• theoretical intention: individuals hold liquidity to conjecture that bond costs will fall. At the point when the loan fee diminishes individuals demand more money to hold until the financing cost builds, which would drive down the cost of a current attach to keep its yield in accordance with the loan fee. Along these lines, the lower the loan cost, the more money demanded

Concept of The Liquidity Preference Theory:

• The Liquidity Preference Theory says that the demand for money isn't to acquire money yet the longing to stay fluid. At the end of the day, the loan cost is the 'cost' for money.
• In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity.