The term  „liquidity trap" was suggested by Keynes (1936) as a  situation in which monetary policy  is unable to stimulate an economy through increasing money supply or  lowering interest rates. Liquidity traps typically  occur  when deflation is expected. Under the Keynesian conception of a liquidity trap  further  injections into the money supply fail to stimulate the economy.  Keynesians claim, that if an economy enters into a liquidity trap, increases in the money stock and reductions in  interest rates will fail to provide a stimulative effect to the economy............

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Miloslav HOSCHEK PhD
independent consultant
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