Liquidity trap

Liquidity trap,

Definition of Liquidity trap:

  1. Situation where bank cash-holdings are rising and banks cannot find sufficient number of qualified borrowers even at extraordinary low rates of interest. It usually arises where people are not buying and firms are not borrowing (for inventory or plant and equipment) because economic prospects look dim, investors are not investing because expected returns from investments are low, and/or a recession is beginning. People and businesses hold on to their cash and thus get trapped in a self-fulfilling prophecy.

  2. In a liquidity trap, should a country's reserve bank, like the Federal Reserve in the USA, 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.

  3. A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective. First described by economist John Maynard Keynes, during a liquidity trap, consumers choose to avoid bonds and keep their funds in cash savings because of the prevailing belief that interest rates could soon rise (which would push bond prices down). 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. At the same time, central bank efforts to spur economic activity are hampered as they are unable to lower interest rates further to incentivize investors and consumers.

How to use Liquidity trap in a sentence?

  1. If you find yourself in a liquidity trap you will need to attempt to get your money out as quick as you can.
  2. A liquidity trap isn't limited to bonds. It also affects other areas of the economy, as consumers are spending less on products which means businesses are less likely to hire.
  3. A liquidity trap is when monetary policy becomes ineffective due to very low interest rates combined with consumers who prefer to save rather than invest in higher-yielding bonds or other investments.
  4. The liquidity trap as experienced directly by the bank as there were no loans to be made as the market was saturated.
  5. At times your money may be in a liquidity trap and you must find a way to get it out as quickly as you can.
  6. Some ways to get out of a liquidity trap include raising interest rates, hoping the situation will regulate itself as prices fall to attractive levels, or increased government spending.
  7. While a liquidity trap is a function of economic conditions, it is also psychological since consumers are making a choice to hoard cash instead of choosing higher-paying investments because of a negative economic view.

Meaning of Liquidity trap & Liquidity trap Definition

Liquidity Trap,

How To Define Liquidity Trap?

The liquidity network is a negative economic situation in which interest rates are very low and savings rates are high, which makes fiscal policy ineffective. Economist John Maynard Keynes first stated that during the liquidity trap, consumers chose to avoid bonds and keep their funds in cash because they thought interest rates would rise soon (which Bond prices will be lower). Because bonds are inversely related to interest rates, many consumers do not want to own assets that are likely to depreciate. At the same time, the central bank's efforts to boost economic activity have been hampered by the fact that it can no longer lower interest rates to attract investors and consumers.

  • A liquidity network is created when monetary policy becomes ineffective because very low interest rates attract customers who prefer savings to investing in bonds or other high yielding investments.
  • The liquidity trap, which is a function of economic conditions, is inherently psychological, as consumers prefer savings over high-paying investments due to a negative economic outlook.
  • Liquidity is not limited to trap bonds. It also affects other sectors of the economy, as consumers spend less on products, which means companies are less likely to hire.
  • One way to avoid the liquidity network is to raise interest rates, in the hope that the situation will be appreciated when prices fall to attractive levels or public spending rises.

Literal Meanings of Liquidity Trap


Meanings of Liquidity:
  1. Cash availability for markets or companies.

Sentences of Liquidity
  1. Banks are shutting down small businesses and creating serious liquidity problems


Meanings of Trap:
  1. Dev devices or cages for catching and holding animals usually allow entry, but not exit or capture any part of the body.

  2. A situation in which people expect a sudden attack.

  3. Containers or devices that are used to store certain items.

  4. A light two-wheeled vehicle pulled by a horse or a pony.

  5. A device for dropping objects like dust pigeons in the air.

  6. Summary for incubation

  7. A person's mouth (used in language impressions)

  8. (In jazz musicians) drums or percussion instruments.

  9. One type of hip-hop music usually features dark heads and locks, including a large kick drum and a very fast hat.

  10. Where drugs are sold.

Sentences of Trap
  1. The squirrels destroy the young trees in spite of the snare

  2. We received false information from various agents and they got caught in the same trap

  3. Fuel filters and water collectors are sufficient in the fuel system

  4. He could see the pyramids through his window, but what he wanted to see was a picture of Tommy, the pony he was riding on his last voyage.

  5. We have to trap the clay pigeons.

  6. The LP will rap on a variety of electronic sounds, from dub stop to trap

Synonyms of Trap

hedge in, ambush, maw, confine, catch, hold captive, shut in, jaws, snare, pin down, hem in, corner, decoy, bait, net, lips, lure, cut off, drive into a corner, mouth, pen, close in, imprison