Liquidity trap refers to a situation in which monetary policy becomes ineffective in stimulating economic growth and boosting demand. It is characterized by a scenario where the central bank tries to stimulate the economy by reducing interest rates, but people and businesses do not respond by increasing their spending and investment. This phenomenon is mainly caused by the infinite interest elasticity of demand for money, low inflation, and the ineffectiveness of monetary policy in boosting demand.

1. Low inflation:
- When an economy is experiencing low inflation or deflation, people expect prices to fall further in the future. As a result, they delay their consumption and investment decisions, leading to a decrease in aggregate demand.
- With lower inflation, interest rates tend to be low, reducing the effectiveness of monetary policy in stimulating demand through interest rate reductions.

2. Ineffectiveness of monetary policy in boosting demand:
- In a liquidity trap, the central bank reduces interest rates to encourage borrowing and investment, but it fails to stimulate demand.
- When interest rates are already close to zero, further reductions may not have a significant impact on borrowing costs or investment decisions.
- As a result, households and businesses may prefer to hold onto cash rather than spend or invest, leading to a decrease in aggregate demand.

3. Infinite interest elasticity of demand for money:
- Liquidity trap is also associated with the infinite interest elasticity of demand for money. This means that even significant reductions in interest rates do not lead to a substantial increase in borrowing and spending.
- In a liquidity trap, individuals and businesses prefer to hold onto cash instead of investing or spending, irrespective of the interest rate.
- This behavior is driven by the uncertainty and pessimism about the future prospects of the economy, which make people more cautious in their spending and investment decisions.

In conclusion, the problem of liquidity trap is related to low inflation, the ineffectiveness of monetary policy in boosting demand, and the infinite interest elasticity of demand for money. These factors create a situation where monetary policy becomes ineffective in stimulating economic growth and increasing aggregate demand.