Trap door with liquidity
The trap door with liquidity is a phenomenon highlighted by the analysis keynésienne, where the State becomes unable to stimulate the economy by the monetary way.
In a context of recession, one of the methods of revival is the reduction in the Interest rate and the increase in the money Supply. However, the agents react to their forecast of interest rate: if this one is raised, they expect that it drops, and they want to preserve less liquidities; if this one is weak, they think that it will increase, and they want to preserve more liquidities. There then exists a critical rate, for which the request for currency is perfectly (infinitely) elastic: the agents all think then that the rate will increase, and their preference for the liquidity is then absolute.
The existence of the trap door has liquidity was postulated by John Maynard Keynes in his Théorie general and taken again by John Hicks within the framework of the Modèle IS/LM, but remained a long time with the state of assumption. For certain economists Néo-keynésien S, whose Paul Krugman, the “lost Decade” in Japan, during the Years 1990, is a concrete example of trap door with liquidity.
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