Final answer:
Liquidity refers to the ease of converting assets to cash, influenced by consumer expectations about future income which affect spending and saving behaviors. Spenders increase liquidity by consuming, while savers may reduce immediate liquidity even though they provide capital for investment.
Step-by-step explanation:
1) Liquidity is crucial for both businesses and individuals because it impacts their ability to meet short-term obligations and take advantage of investment opportunities. It refers to how easily an asset can be converted into cash without affecting its market price.
2) Consumer expectations play a significant role in liquidity. When consumers are optimistic about future income, they are more likely to spend rather than save, increasing liquidity in the market. Conversely, if they expect economic downturns, their spending decreases, and they save more, reducing market liquidity.
3) The impact on liquidity is more nuanced when considering spenders versus savers. Typically, spenders increase liquidity by injecting money into the economy through consumption.
Savers, while providing a different form of capital supply for investment, may hold onto their funds, reducing immediate liquidity. Hence, spenders generally have a more direct and immediate effect on liquidity.