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Strategies & Market Trends : World Outlook

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From: Don Green6/16/2024 12:44:12 PM
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What is a Liquidity Trap? Here's What You Should Know



Too much of a good thing can be dangerous, even in the stock markets. While markets often crave liquidity, especially in times of trouble, too much liquidity can create problems. A liquidity trap is a situation where the tools of central banks lose effectiveness as the money supply grows and demand fails to keep pace.A liquidity trap occurs under specific conditions, making it challenging for policymakers to revive the economy, especially when interest rates are already low. In this article, you will learn why liquidity traps form and how the government responds to them.

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