A liquidity trap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt (financial instrument) which yields so low a rate of interest."[1]
A liquidity trap is caused when people hold cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level.[2]
^Keynes, John Maynard (1936) The General Theory of Employment, Interest and Money, United Kingdom: Palgrave Macmillan, 2007 edition, ISBN 978-0-230-00476-4
^Krugman, Paul R. (1998) "It's baack: Japan's Slump and the Return of the Liquidity Trap," Archived 24 May 2013 at the Wayback Machine Brookings Papers on Economic Activity
A liquiditytrap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference...
In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes...
the liquidity preference function. Keynes did not investigate the question of whether his formula for multiplier needed revision. The liquiditytrap is...
the liquiditytrap". Voxeu.org). Archived from the original on 21 April 2021. Retrieved 26 November 2018. Eggertsson, Gauti B. (2018). "LiquidityTrap"....
thus shifting the IS curve back towards the right. An economy in a liquiditytrap cannot use monetary stimulus to increase output because there is little...
market to adjust more quickly in a downturn and reduces the risk that a liquiditytrap prevents monetary policy from stabilizing the economy while avoiding...
(including trade theory and international finance), economic geography, liquiditytraps, and currency crises. Krugman is the author or editor of 27 books,...
Crisis. Liquiditytraps are essentially a lack of circulation or growth in the supply of money in the economy. Krugman argues that liquiditytraps are caused...
to adjust more quickly to a recession, and reduces the risk that a liquiditytrap (a reluctance to lend money due to low rates of interest) prevents monetary...
Conventional monetary policy can be ineffective in situations such as a liquiditytrap. When nominal interest rates are near zero, central banks cannot loosen...
market to adjust more quickly in a downturn, and reduce the risk that a liquiditytrap prevents monetary policy from stabilizing the economy. The task of keeping...
policies is the liquiditytrap. This happens when inflation rate declines too much leading to a threat of deflation. Liquiditytrap is defined as a situation...
manage the liquidity in the system to ensure that the correct amount of reserves is on-hand in the banking system. Central banks manage liquidity by buying...
monetary aggregates, using a categorization system that focuses on the liquidity of the financial instrument used as money. The most commonly used monetary...
so that increases in the money supply have no stimulatory effect (a liquiditytrap), play an important role in Keynesian theory. This situation occurs...
2000s decade shows that monetary policy also has certain limitations. A liquiditytrap occurs when interest rate cuts are insufficient as a demand booster...
competition Market failures Price and wage stickiness Bounded rationality Liquiditytrap General Schools of economic thought Chicago school of economics Gordon...
shifted, to become burdens to the United States. Hanes, Christopher. "The LiquidityTrap and U.S. Interest Rates in the 1930s" (PDF). Archived from the original...
money because its value is now increasing over time. This can produce a liquiditytrap or it may lead to shortages that entice investments yielding more jobs...
Krugman and Gauti Eggertsson in the paper Debt, Deleveraging, and the LiquidityTrap: A Fisher-Minsky-Koo Approach. The term was intended to complement the...
of flexibility have been proposed: A willingness to work more in a liquiditytrap and wage flexibility after a debt deflation shock may lead not only...
effect of a failure of a central bank to support the money supply during a liquidity crunch. In particular, the authors argued that the Great Depression of...
Investment Liquiditytrap Measures of national income and output GDP GNI NNI Microfoundations Money Endogenous Money creation Demand for money Liquidity preference...
Guido (1 August 2017). "Credit Crises, Precautionary Savings, and the LiquidityTrap". The Quarterly Journal of Economics. 132 (3): 1427–1467. doi:10.1093/qje/qjx005...
when interest rates approach zero. Very low interest rates induce a liquiditytrap, a situation where people prefer to hold cash or very liquid assets...
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