According to the theory of liquidity preference, if the interest rate is below the equilibrium level, the quantity of money people want to hold is more than the quantity the central bank has created, and this shortage of money puts upward pressure on the interest rate.

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This is the basic premise of the theory of liquidity preference, as proposed by John Maynard Keynes. When the interest rate is below the equilibrium level, people want to hold more money than there is in circulation, which creates a shortage and drives up the interest rate. This is because people are willing to pay more for the available money, indicating a higher demand for it. Conversely, when the interest rate is above the equilibrium level, people have more money than they wish to hold, which leads to a surplus and decreases the interest rate.

According to the Theory of Liquidity Preference, If the Interest