Liquidity Trap
A Liquidity Trap is an economic scenario where individuals and businesses prefer to hold onto cash rather than spending or investing, despite interest rates being low. This occurs because people anticipate that interest rates will rise in the near future, making cash more valuable in the short term. In this situation, even central banks lowering interest rates may not effectively stimulate economic activity, as people are unwilling to spend or invest. This leads to a stagnation in economic growth and challenges for monetary policy effectiveness.
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