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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]
Paradox of thrift. The paradox of thrift (or paradox of saving) is a paradox of economics. The paradox states that an increase in autonomous saving leads to a decrease in aggregate demand and thus a decrease in gross output which will in turn lower total saving. The paradox is, narrowly speaking, that total saving may fall because of ...
t. e. In economics, crowding out is a phenomenon that occurs when increased government involvement in a sector of the market economy substantially affects the remainder of the market, either on the supply or demand side of the market. One type frequently discussed is when expansionary fiscal policy reduces investment spending by the private sector.
The liquidity trap. The liquidity trap is a phenomenon that may impede the effectiveness of monetary policies in reducing unemployment. Economists generally think the rate of interest will not fall below a certain limit, often seen as zero or a slightly negative number.
Zero lower bound. The zero lower bound ( ZLB) or zero nominal lower bound ( ZNLB) is a macroeconomic problem that occurs when the short-term nominal interest rate is at or near zero, causing a liquidity trap and limiting the central bank's capacity to stimulate economic growth. The root cause of the ZLB is the issuance of paper currency by ...
Economic reforms in Argentina and Mexico led to an overvalued currency, and efforts to hamper currency speculation with a devaluation was insufficient resulting in the economic crisis. Chapter 3 "Japan's trap" Krugman uses the liquidity trap in 1990s Japan to signal the return of depression economics.
Helicopter money. Helicopter money is a proposed unconventional monetary policy, sometimes suggested as an alternative to quantitative easing (QE) when the economy is in a liquidity trap (when interest rates near zero and the economy remains in recession ). Although the original idea of helicopter money describes central banks making payments ...
Robertson was the first to use the term "liquidity trap". Ultimately however, differences of temperament and views about economic theory and practice (especially in the 1937 debate over the savings-investment relationship in the General Theory) led to some estrangement between the two men.