When does the liquidity trap happen?

When does the liquidity trap happen?
Like
3
1,227
10
Like
3
1,227
10
This mind map was made with MindMeister

When does the liquidity trap happen?

When does the liquidity trap happen?



Factors favouring the liquidity trap

The liquidity trap is created in context of low interest rates, high savings rates and with a monetary policy that try to stimulate the economy.


Step 1: The central bank injects cash into private banks
The goal of the central bank is to stimulate the economy

Step 2: The injection is ineffective
The injection has no effect on interest rates or on the level of income
People keep their cash either because they believe that interest rates will soon rise or because they do not want to hold an asset which has an expected price decline.

Step 3: This results in
An ineffective monetary policy that didn’t stimulate the economy.
An situation which is worse then before: interest rates are now close to zero, the state has injected money for nothing, the money injected may create bubbles in the near future and the state has placed itself in debt.



View More On This Topics
http://www.investopedia.com/terms/l/liquiditytrap.asp
http://economictimes.indiatimes.com/definition/liquidity-trap
https://www.stlouisfed.org/publications/regional-economist/april-2014/the-liquidity-trap-an-alternative-explanation-for-todays-low-inflation
http://en.wikipedia.org/wiki/Liquidity_trap
http://en.wikipedia.org/wiki/File:Liquidity_trap_IS-LM.svg
Created using: Visit Website
Category: Library > Parent > Child
Copyright & licencing: ©2015 . All Rights Reserved.
Tags:

Comments

Please login to post comments

Related Mind Maps:

Share this mind map

Link:

To open this mind map, you`ll need Visit Website or compatible mind mapping software installed.

Need help? Please contact us

Notes

Another free MindMeister Social Sciences Mind Map shared on Biggerplate! Register FREE to download thousands of mind map templates and examples!

View more MindMeister templates.

Need custom mind map templates for your business? Learn more

Biggerplate logo

Go Further with Mind Mapping: Upgrade to Biggerplate PRO!

Exclusive webinars & events
100+ webinar replays
Exclusive software discounts
Image library access
Create unlimited Collections
View Details

Upcoming Webinars:

XMind for Business
XMind for Business
In this webinar, you'll learn about some of the key uses of XMind in business! We'll look at how si…
Speaker: Liam Hughes
Date 04 August 2021
Preparing Videos and Webinars with Mind Maps
Preparing Videos and Webinars with Mind Maps
Whether you are preparing a video recording or live webinar, mind maps are a great tool for brainsto…
Speaker: Alexis van Dam
Date 12 August 2021
Biggerplate Certified

Validate your mind mapping software skills with Biggerplate Certification!

Learn more
Copyright 2008 - 2021 Biggerplate.com Ltd. All rights reserved.