how does liquidity preference theory help understand financial crises 
liquidity preference theory can shed light on liquidity dynamics and its effect on financial stability the heightened preference for liquidity during financial crises can exacerbate market conditions a sudden rush for liquidity can lead to fire sales of assets plummeting asset prices and a tightening of financial conditions policymakers and financial institutions can better anticipate and mitigate the adverse effects of financial crises by understanding the principles of liquidity preference they can devise strategies to enhance financial stability 