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Liquidity trap - Wikipedia

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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] John Maynard Keynes, in his 1936 General Theory,[1] wrote the following: There is the possibility...that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the mon

Liquidity trap - Wikipedia Jump to content From Wikipedia, the free encyclopedia Situation described in Keynesian economics Part of a series on Macroeconomics Basic concepts Output and measurement Growth Business cycle Financial crisis Recession National accounts SNA GDP GNI NNI Output gap Unemployment Money and prices Exchange rate Inflation Cost-push Deflation Demand-pull Disinflation Price level Shrinkflation Stagflation Interest rate Liquidity trap Money Creation Demand Liquidity preference Endogenous Supply Dynamics and theory Aggregate demand Effective demand Aggregate supply Balance of

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