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Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap.
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Write the meaning of Transactions motive and sspeculation motive of de...
Liquidity trap is a situation when expansionary monetary policy (increase in money supply) does not increase the interest rate, income and hence does not stimulate economic growth.
Description: Liquidity trap is the extreme effect of monetary policy. It is a situation in which the general public is prepared to hold on to whatever amount of money is supplied, at a given rate of interest. They do so because of the fear of adverse events like deflation, war.
In that case, a monetary policy carried out through open market operations has no effect on either the interest rate, or the level of income. In a liquidity trap, the monetary policy is powerless to affect the interest rate.
There is a liquidity trap at short term zero percent interest rate. When interest rate is zero, public would not want to hold any bond, since money, which also pays zero percent interest, has the advantage of being usable in transactions.
Hence, if the interest is zero, an increase in quantity of money cannot not induce anyone to buy bonds and thereby reduce the interest on bonds below zero.
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Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12
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Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12 for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12 covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12.
Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12 for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12 covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Write the meaning of Transactions motive and sspeculation motive of demand for money and liquidity trap. Related: Chapter Notes - Money and Banking, Economics, Class 12.
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