Briefly explain the liquidity preference theory

Liquidity preference is the desire by individuals or firm to prefer holding or keeping their assets or wealth in money or cash form.

According to Keynes, the demand for money is the desire to hold cash for transactions, precautionary and speculative motives.

The higher the liquidity preference, the more the rate of interest paid to cash holder to part with liquidity. At the liquidity trap, interest is too low to break liquidity preference so people hold cash.