Liquidity Trap


Liquidity Trap
A situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline.

Should the regulatory committee try to stimulate the economy by increasing the money supply, there would be no effect on interest rates as people do not need to be encouraged to hold additional cash.


Investment dictionary. . 2012.

Look at other dictionaries:

  • liquidity trap — UK US noun [S] ECONOMICS ► a situation in which a government is not able to encourage economic activity, for example by cutting interest rates, because people who have money do not want to spend it: »This carries the danger of the liquidity trap …   Financial and business terms

  • Liquidity trap — A liquidity trap is a situation described in Keynesian economics in which injections of cash into an economy by a central bank fail to lower interest rates and hence to stimulate economic growth. A liquidity trap is caused when people hoard cash… …   Wikipedia

  • liquidity trap — condition in which monetary expansion does not affect the exchange rate (Economics) …   English contemporary dictionary

  • liquidity trap — A situation in which investors hold on to cash because they are worried about the likelihood of a fall in the price of financial assets. J. M. Keynes argued that in these circumstances monetary policy becomes ineffective, because monetary… …   Big dictionary of business and management

  • liquidity — A market which allows quick and efficient entry or exit at a price close to the last traded price. The ability to liquidate or establish a position quickly is due to a large number of traders willing to buy and sell. The CENTER ONLINE Futures… …   Financial and business terms

  • Liquidity — A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease. The New York Times Financial Glossary * *… …   Financial and business terms

  • Trap — A trap is a device or tactic intended to harm, capture, detect, or inconvenience a human or animal intruder, or animal pest or game. Traps may be physical objects, such as cages or snares, or metaphorical concepts. Physical trapsExamples of… …   Wikipedia

  • trap — {{Roman}}I.{{/Roman}} noun 1 hidden equipment used for catching sb/sth ADJECTIVE ▪ animal, bear, mouse (usually mousetrap), etc. ▪ radar (BrE), speed ▪ …   Collocations dictionary

  • liquidity — noun Liquidity is used before these nouns: ↑crisis, ↑trap …   Collocations dictionary

  • Ловушка ликвидности — LIQUIDITY TRAP Ситуация, при которой процентная ставка настолько низкая, что люди не хотят инвестировать свои средства, а предпочитают хранить их в ликвидной форме (см. Liquidity preference). В условиях низких процентных ставок эластичность… …   Словарь-справочник по экономике


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