liquidity trap

Examples of liquidity trap in the following topics:

• Limitations of Monetary Policy

  • Limitations of monetary policy include liquidity traps, deflation, and being canceled out by other factors.
  • In a liquidity trap, bonds pay little to no interest, which makes them nearly equivalent to cash.
  • Thus, if an economy enters a liquidity trap, further increases in the money stock will fail to further lower interest rates and, therefore, fail to stimulate.
  • A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war.
  • This is a liquidity trap.

• The Slope of the Aggregate Demand Curve

  • There are only two times when the Keynes observation on the interest rate effect will be inaccurate, and that is if the IS (investment savings) curve were to be vertical or if the LM (liquidity preference money supply) curve were to be horizontal.
  • This makes sense if you think about it, it would basically equate to a liquidity trap.
  • In the context of the above discussion on Keynes, Pigou's Wealth Effect underlines the fact that liquidity traps are not sustainable.
  • The IS-LM model takes investments and savings and compares that to liquidity and the overall money supply.

• Monetary Policy and Fiscal Stabilization

  • The United States has not encountered this situation, which economists call the "liquidity trap," in recent years, but Japan did during the late 1990s.

• Boyle's Law: Volume and Pressure

  • Boyle showed that the volume of air trapped by a liquid in the closed short limb of a J-shaped tube decreased in exact proportion to the pressure produced by the liquid in the long part of the tube.
  • The trapped air acted much like a spring, exerting a force opposing its compression.

• Factors that Affect Reaction Rate

  • In a reaction between a solid and a liquid, the surface area of the solid will ultimately impact how fast the reaction occurs.
  • This is because the liquid and the solid can bump into each other only at the liquid-solid interface, which is on the surface of the solid.
  • The solid molecules trapped within the body of the solid cannot react.
  • Therefore, increasing the surface area of the solid will expose more solid molecules to the liquid, which allows for a faster reaction.
  • Keep in mind this logic only works for gases, which are highly compressible; changing the pressure for a reaction that involves only solids or liquids has no effect on the reaction rate.

• Combustion Analysis

  • Combustion analysis is an elemental analytical technique used on solid and liquid organic compounds.
  • In combustion analysis, the products, carbon dioxide and water vapor, are trapped by absorption onto reactive solids located in tubes above the reaction vessel.

• The Work of Breathing

  • The air-tissue/water interface of the alveoli has a high surface tension, which is similar to the surface tension of water at the liquid-air interface of a water droplet that results in the bonding of the water molecules together.
  • In these types of restrictive diseases, the intrapleural pressure is more positive and the airways collapse upon exhalation, which traps air in the lungs.
  • The overall compliance of the lungs is increased, because as the alveolar walls are damaged, lung elastic recoil decreases due to a loss of elastic fibers; more air is trapped in the lungs at the end of exhalation.
  • Those with obstructive diseases have large volumes of air trapped after exhalation.

• The Third Law of Thermodynamics and Absolute Energy

  • In addition, glasses and solid solutions retain large entropy at absolute zero, because they are large collections of nearly degenerate states, in which they become trapped out of equilibrium.
  • Materials that remain paramagnetic at absolute zero, by contrast, may have many nearly-degenerate ground states, as in a spin glass, or may retain dynamic disorder, as is the case in a spin liquid.

• Cytotoxic T Lymphocytes and Mucosal Surfaces

  • The spleen is also the site where APCs that have trapped foreign particles in the blood can communicate with lymphocytes.
  • The liquid passes through (b) lymph nodes that filter the lymph that enters the node through afferent vessels, leaving through efferent vessels.

• Liquidity

  • In accounting, liquidity (or accounting liquidity) is a measure of the ability of a debtor to pay his debts when they fall due.
  • The main categories of assets are usually listed first, and typically in order of liquidity.
  • Liquidity also refers both to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves.
  • The liquidity ratio (acid test) is a ratio used to determine the liquidity of a business entity.
  • The formula is the following: LR = liquid assets / short-term liabilities.