- Level of (cash) transactions. The higher the level of transactions, the more money is needed to meet day-to-day expenditures hence high level of liquidity preference and the lower the level of transactions, the less the desire for money hence low level of liquidity preference.
- General Price level/ rate of inflation. A high price level leads to high liquidity preference because a lot of cash is needed to purchase goods and services at a high price while a low price level necessitates less cash at hand hence liquidity preference being low.
- Level of income. High income levels result into high levels of liquidity preference because funds are readily available for saving, spending and for investing while low income levels result into low levels of liquidity preference because there are less funds for spending.
- Degree of uncertainty. The higher the degree of uncertainty, the higher the level of liquidity preference because people are not sure of what will happen in the future while a low degree of uncertainty in the future enables people to save and invest hence leading to low levels of liquidity preference.
- Interest rates on financial assets.
- Knowledge of banking facilities or services provided by commercial banks. Knowledge of banking facilities by the public enables them to deposit their money in those banks other than risking walking with money hence liquidity preference is low while ignorance about banking facilities by the public leads to high liquidity preference.
- Distribution of commercial banks or level of development of commercial banks and other financial institutions. Well developed financial institutions especially banks attract people to save in those institutions hence liquidity preference is low while underdeveloped financial institutions discourage people to save their money with them hence high liquidity preference.
- Level of literacy
- Level of speculation.
- Requirements for opening and operating bank accounts
- Level of infrastructural development.
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