Definition of 'Liquidity Trap'
This is a situation in which interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings because of the belief that interest rates will soon rise. Bonds have an inverse relationship to interest rates so investors will not want to hold an asset with a price that is expected to decline.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.