What is liquidity in economics?

What is liquidity in economics?


Liquidity refers to how quickly a financial asset can be used to buy a good or service. For example, cash is very liquid. Cash of sh. 100, 000 can be easily used to buy a shirt from a retail shop. However, sh. 100,000/= on account is not so easy to use. One has to the bank or ATM machine and withdraw that cash to buy lunch. Thus, sh. 100,000/= account is less liquid.

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