Define the term liquidity.

Liquidity is defined as how easily assets can be converted into cash without significantly affecting their market value. This concept is crucial in finance and economics because it directly relates to the ability of individuals or businesses to meet immediate financial obligations. In practice, highly liquid assets, such as cash or stocks, can be quickly sold or accessed, while less liquid assets, like real estate or collectibles, may take longer to convert into cash.

The other options do not accurately define liquidity. For instance, liquidity is not concerned with the growth rate of investments, total debt, or profitability. Instead, those factors relate to different aspects of financial analysis, such as profitability ratios or debt management, which are distinct from the concept of liquidity itself. Understanding liquidity helps individuals and businesses manage their cash flow effectively and ensures they can respond to unexpected expenses or opportunities in a timely manner.