Please help me it's driving me mad yet I know it's so simple. I understand the qualitative aspects - how liquidity is simply a portion of our nominal income that we demand for transactions. And how this demand for liquidity decreases as the interest rate increases because the opportunity cost of money increases. But i don't understand how we arrive at the liqudity value as a decreasing function of interest rates. My textbook and lectures don't show it, so i'm assuming it's "obvious" in nature, but i still can't see it. e.g. my textbook says L(liquidity) = 0.55 - 0.05 = 0.5 when the interest rate is 5%. Ok, so 0.05 is obviously the 'r' but where did 0.55 come from?



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