Liquidity Trap

A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in general price levels.

Read more about Liquidity Trap:  Conceptual Evolution, Criticisms

Famous quotes containing the word trap:

    The little lifting helplessness, the queer
    Whimper-whine; whose unridiculous
    Lost softness softly makes a trap for us.
    And makes a curse.
    Gwendolyn Brooks (b. 1917)