What Is A Liquidity Trap? - How Does A Liquidity Trap Affect The Economy?

A liquidity trap is an economic scenario in which there is contraction in the economy despite very low interest rates. Under a liquidity trap, monetary policy fails to work as people hold onto their savings even in the presence of low interest rates. The situation of liquidity trap is marked with low interest rates, slow economic growth, and low inflation. To know more about liquidity trap watch this video.
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