The liquid’s undergoing a chemical reaction. The chemical reaction picks up electrons from one end of the battery and drops them at the other end.
When the battery’s disconnected, the chemical reaction builds up electrons to a certain level, then stops. It stops because the “back-pressure” of the built-up electrons doesn’t allow new ones to be deposited (like charges repel, which means as negatively charged electrons build up in a localized area, it gets harder and harder to force more electrons into that area).
When you connect the terminals (by putting the battery in a circuit), the built-up electrons can flow (through any devices in the circuit). This eases off the “back-pressure” which lets the chemical reaction continue (until the ingredients are used up, which is when the battery “dies”).
Some kinds of batteries use a chemical reaction that can be run backwards. If you use an external power source to force electrons to flow in the opposite direction, it causes the reverse chemical reaction to happen and re-generate the original ingredients. This is how rechargeable batteries work.
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