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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]
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 ...
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 ...
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.
e. In economics, deflation is a decrease in the general price level of goods and services. [ 1] Deflation occurs when the inflation rate falls below 0% (a negative inflation rate ). Inflation reduces the value of currency over time, but deflation increases it. This allows more goods and services to be bought than before with the same amount of ...
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 individuals' attempts to ...
Quantitative easing is a novel form of monetary policy that came into wide application after the 2007–2008 financial crisis. [2] [3] It is used to mitigate an economic recession when inflation is very low or negative, making standard monetary policy ineffective. Quantitative tightening (QT) does the opposite, where for monetary policy reasons ...
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.