According to the Liquidity Preference theory of interest, at a point above the equilibrium rate of interest, the supply of money exceeds the quantity demanded and some households, businesses and units of government will try to dispose of unwanted money balances by purchasing bonds.

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According to the Liquidity Preference Theory, proposed by John Maynard Keynes, interest rates adjust to balance the supply and demand for money. At a point above the equilibrium interest rate, the supply of money indeed exceeds the demand. As a result, entities holding excess money balances will seek to invest in bonds or other assets, thereby driving down the interest rate towards equilibrium.

According to the Liquidity Preference Theory of Interest, at a Point