Liquidity Trap

• Liquidity trap occur when there is 0 % Interest rates

• Occurs mostly when there is really low interest

Why Does 0 % Interest Rate Occur?

• When their is no interest rate at all, the use of capital increases, this can increase inflation as demand for goods increase, prices increase and imports increase

• The part where the graph goes constant, is that part called liquidity trap, the term "liquid cash" means that easily spendable money

• Economic growth decreases as savings increase due to low interest rates

• Less spending causes deflation, no enough income for firms and businesses

• Due to the expectation of further decrease in price, sales decrease, profit decreases influencing the salaries of workers, this lacks economic growth