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A liquidity trap is an economic situation where interest rates are low and savings rates are high, rendering monetary policy ineffective in stimulating economic growth. In this scenario, despite central banks lowering interest rates, consumers and businesses hoard cash instead of spending or investing, leading to stagnant demand. This can occur during periods of economic downturn or uncertainty, where people prefer liquidity over investment. As a result, traditional tools of monetary policy, such as lowering interest rates, fail to encourage borrowing and spending.
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What is a liquidity trap?
A liquidity trap is an economic situation in which interest rates are low, and savings rates are high, rendering monetary policy ineffective in stimulating the economy. In this scenario, consumers and businesses hoard cash instead of spending or investing, despite central banks injecting liquidity into the financial system. As a result, even with low borrowing costs, aggregate demand remains stagnant, leading to persistent economic downturns. Liquidity traps often occur during periods of recession or deflation.
Why might a profitable business face liquidity problems?
No liquidity
What is liquidity in financial system?
Liquidity is basically how much cash is available.
How can a company improve its liquidity position?
How can the liquidity position of a company be improved
Liquidity and yield analysis?
what is the comparison between liquidity & yield analysis ??????
What is the ability to be used as or directly converted to cash called?
Liquidity
Why is liquidity?
In business terms, liquidity is very important as it can help an establishment to quickly come out of debt. Liquidity is the measure of how sellable an investment or asset is.
What is a liquidity order?
ORDER OF LIQUIDITY is when items on a balance sheet are listed in order of liquidity. After cash, the other current assets are listed in order of liquidity or nearness to cash (i.e. Accounts Receivable first, then Inventory).
Shortage of liquidity in money market?
is the drain of excess liquidity from the money market
Why is liquidity important?
In business terms, liquidity is very important as it can help an establishment to quickly come out of debt. Liquidity is the measure of how sellable an investment or asset is.
What is liquidity decision?
The decision made for the management of current asset that affects a firm's liquidity.
What is the purpose of the liquidity ratio?
Liquidity ratios measure the availability of cash to pay debt
