Abstract: In 2018, trade frictions between China and the US result in a downward trend in the stock market. The central bank reduces the reserve requirement and continue to increase the policy easing, which ensure the improvement of liquidity and stabilize the market trend. With the outbreak of COVID-19, the liquidity crisis causes four stock circuit-breakers in the United States and leads to turbulence in global stock markets. Thus, the liquidity problem affects the stability of the financial market, which in turn affects the development of firm. From the micro side, liquidity can also bring the entrepreneur utility to a certain extent. Therefore, entrepreneurs have liquidity preferences. What influence will entrepreneurs' liquidity preferences have on investment and consumption decisions and asset pricing? In addition, product technology innovation causes firm’s business cycle, which has the effect on investment and consumption decisions and asset pricing. How do the liquidity preferences affect the impact of business cycle on the solutions. As far as the author knows, there exit no paper to study the above problem, so this paper aims to fill this gap.

Key words: liquidity preference; business cycle; investment and consumption; utility indifferences pricing