The Liquidity Trap

[@parikshitshah277]

Hello sir. I am from India and currently studying MA in Economics. Your video helped me in understanding the concept so much. I cannot travel to any classes or college due to my physical disability but your method of teaching is so real that I feel like classroom at my home. Thank you so much.

[@ewp7615]

hope you mastered your Master well!

[@hafizascape]

oh my God. you explain it in an easy way. please keep lecturing, sir. i'm looking forward to your next videos!

[@punkyhippo]

I remember watching this video a year ago and I just couldn't grasp the logic. Now after one finance course, this actually makes complete sense to me! Keep up the quality work, you are a terrific instructor!

[@TheWyvern66]

Tom Friend Kake: I agree very much with you. The stock market is the home to which many dollars have fled; I think it is overvalued, but until there is somewhere else for the money to go, it may be a long-lived 'bubble' of sorts. The distribution of income in the US is so skewed that the wealthy are driving tax policies and the like to their own long-term detriment. At some point we hope they will realize they need customers to enjoy more wealth, and customers without income are not ... customers.

[@wiqarhussain908]

Thank you sir for such nice lectures. I have three questions. In one text I saw a discussion in which they said that interest rate causes money supply to increase but they didn't explain it at all. Second like you said that there is no inflation when we are in the liquidity trap. can you please elaborate the explanation a bit further that why that might be so? Third is that when income distribution becomes so skewed like you say will it not be the case that arrangements like WTO may enable the rich producers to find customers in other countries thereby lowering any worry to reduce income inequalities locally.

[@craigwegener6901]

I've been Trading for 6 years and watch alot of economic data, You did an amazing job with your explanation!

[@flatorange4978]

I would have a macroeconomics presentation a few minutes later and was confused about this concept. Thanks a lot for this lecture.

[@smangasanga8693]

Wow you deserve an award of good explaination. I thank God i found this video!

[@anmolsharma5968]

I knew about liquidity trap very well. But I always found it difficult to explain to students who don't understand this subject well. this video is good example of how to explain it. Simple and effective.

[@PoojaSingh-pk8vs]

Read the book for 2hours couldn’t understand but you explained it so easily in just few minutes Thanks Professor !

[@k0n14k]

Thanks a lot! Very helpful. People like you make me believe in humanity

[@30hotmale]

i literally said "yes sir,,,exactly"...at 03:53, while siiting alone in my room

[@LMGVenom47]

hahahaha

[@wallopwallop9125]

He’s a legend man

[@willyate1020]

So helpful, thank you! I don't know why but it makes sense on the liquidity preference graph but I still don't understand it on the IS-LM graph. So I hope you do a video on the IS-LM graph too!

[@clintonseetoh1520]

I like this dude, Face expression got my attention ,makes me focus

[@RikiWinathaSEMCP]

Dear Sir, Your explanation was catchy that you could deliver it as a simple way. furthermore, your tone and pronunciation were very clear that make people who not using english as their primary language could understand clearly. thank you.

[@TheWyvern66]

Thank you very much; you're feedback is most welcome; and you made my day! :)

[@ngoniwellymugombi7090]

this is one of the best presentations. i like it

[@maokeey]

12/27/2021. This helped me tremendously. Thank you so much. You explained it clearly

[@thesweeetscent]

wow. very nice, simple and clear explanation of the liquidity trap. thanks Dr.

[@Paranormal569]

You make econ much more relaxing. My prof just gets up there and starts scribbling as fast as he can.

[@JonathanGallodajay]

Great explanation, thank you for taking the time of doing this then sharing it with us all.

[@hamayonfaisal829]

Excellent video lesson. What will be Quantitative Easing effect on the IS-LM curves? If an economy is in recession with low interest rate , which policy mix should be applied to recover it?

[@bmwmgii]

i have been looking for short on Eco .your videos are awesome.

[@HFHGolf]

I get confused why we don't have to worry about inflation in a liquidity trap...and why would we want to worry about how much debt we can handle when increasing the debt won't restore the economy? I enjoy your videos.

[@aw11roman]

Thank you very much for the time and effort in uploading this - what a great video from a wonderful teacher! Very much appreciated

[@ihor4ix]

Thank you for this video! I'm doing accounting in uni, but I wasn't werry interested in this. but watching your video it became a lot interesting! Thank you.

[@patrickbledon1350]

Sir, you are a hell of a professor, your explanations are very smooth. Just one question : I read elsewhere that inflation will still grow up even if you are in a liquidity trap but more money is still being pumped, is that right ? and what is the argument against that ?

[@bravewellmawthoh6347]

Thank You!!! The explanation is so simple and understanding.....

[@siddharthsaikia5327]

Sir, your explanation is very clear and lucid. But can you explain the part when you said "by increasing money supply in a liquidity trap, there will be no inflation."

[@rahuldas9580]

like seriously .. you are great man.. things are sooo sooo very simple to understand ..thank you :)

[@jacijfa11]

you are simply a blessing! happy Easter!!!

[@Ninja250ish]

Thanks! Explained way better than my professor.

[@rogerstrickland4004]

Yes, the QE effort is now geared towards reducing fears of inflation by going longer term. Initially I believe the goal was more short term, but as the Republican party gridlocked Congress, it became apparent that there would be no fiscal policy to stimulate the economy. Thanks for your comment. RS

[@thuydungta4169]

Wow what an excellent explanation! I wish you were my professor.

[@alexanderjack7103]

it change my understanding on macroeconomics

[@fernandokleinrocha1]

Excelent explanation and video. Helped a bunch. Thanks

[@CrimsonOmega-]

This is a great explanation of the liquidity trap thank you.

[@TheWyvern66]

When the economy has lost jobs - say in construction - new money can reduce interest rates and stimulate demand for housing and thus create jobs. As long as borrowers still have steady income and reasonably positive expectations. This is a short-run stimulus, much like warming up an engine. But when borrowers have no jobs, businesses have no customers, and very low interest rates aren't attractive to either one. Thus - a liquidity trap.

[@wanggeorgia5947]

this is amazing, KZbin video is better than my prof!!! thanks a lot.

[@utkarshpande11]

Thanks professor. but a quick question. If real int rate is 0 or even negative, I dont hold bonds fine ok..but hey, the money I hold is also losing value quickly as the PPP is going down quickly..so wont I want to spend some of it today and thus increase the demand? i may have asked a foolish question as I am not a eco student although I am fast becoming one thanks to cool instruction like by yourself!! thanks grandpa.

[@seancsnm]

This was published this year, right?

[@tothefxckinmoon4540]

lol...it's as relevant as ever

[@liibernovski]

Super-useful, thank you!

[@schminsk42]

Another reason banks aren't lending is that the regulatory hoops just to make a home loan are significantly greater than they were. I understand that just fogging a mirror isn't really enough to get a loan, but any banker will tell you it's a bit over the top.

[@zatizsumkoolshyte]

Thank you sir for your succint and clear explanation!!

[@GanjaPharmzor]

It's the basic demand and supply principle. As the money supply goes up, the demand for money decreases. And since interest rates can been seen as the price for money.. What happens with the price when the demand falls? It decreases.

[@TheASSASSIN51]

THank you this explains a lot. Really well explained

[@pascalslaa6149]

Good explanation prof!

[@kurtleimkuehler]

It all makes sense. Their is no inflation in a liquidity trap.

[@abderraoufd6441]

thank you professor 100%

[@samy5102]

very useful video. But I don't get how increasing Money Supply in a Liquidity Trap doesn'nt cause inflation? In a liquidity Trap people, after the Central bank increases Money supply people will prefer to hold money and not buy bonds since interest is very low, so interest wont get lower. But when they keep their money instead of buying bonds, they will use it for transactions and thus increase consumption and thus Aggregate Demand will increase causes prices to increase?

[@andrewstoked]

Great video!

[@cmarcion]

to the point and very clear

[@prithvishah6618]

thanks really helped me alot for my paper tommorow

[@soorajs.s963]

Really nice presentation Sir ..Keep doing :)

[@TheWyvern66]

Thank you. :)

[@matnn7531]

great teacher splendid

[@IproductionsI]

Is the DSGE model a good model in a liquidity trap situation?

[@TheWyvern66]

The DSGE model is founded on neo-liberal/classical microeconomics assumptions - much as is the microeconomic 'perfectly competitive world' model. As such, many of the assumptions are logically appealing, rational, and aesthetically pleasing, ... but the 'real' world is not 'ceteris paribus' - i.e., things keep changing, which reduces the predictive power of the microeconomic models, especially in the short run. For that reason, I personally don't hold much faith in it.

[@IproductionsI]

Thank you very much for your answer!

[@ahmadothman800]

All respect!!

[@ananyverma6033]

great video. But the subtitles at 1:27 is pretty funny. xD

[@classScribbler]

Thanks a lot for that. Really appreciate it.

[@Nickylouisef]

Very helpful, thank you so much!!!

[@johnwen5352]

Great videos thanks :) better audio quality would be awesome !

[@elainem8591]

Great explanation! Thank you

[@nitinchaudhary4252]

sir please explain why will people hold more cash when Interest rates are low, wouldnt they look at other options that give better returns... and By this interest rate you mean the one we get on deposits..or the one on bonds

[@rogerstrickland4004]

The simplistic initial assumption is that you either hold cash or invest it, nominally in bonds. You could extend that, but the focus is one how much cash you will hold and thus forego any return on that money. Bonds are a helpful investment vehicle to describe this: if you hold a 1% bond, your return is miniscule and - worse - if interest rates DO rise, your bond will decrease in value. So at low interest rates you have two reasons to hold cash - the low return you would otherwise earn and the risk of a depreciation in the value/price of your investment. At high interest rates, you would favor bonds both because they pay a respectable return AND because if interest rates fall (more likely than them rising) your investment appreciates in value/price.

[@nitroxize]

my question is , when you have a negative inflation rate, and a positive nominal rate. the real interest rate is actually positive,(R=i-(-)Inflation =positive real rate. now what are the implication of this theory? would you consider that the liquidity trap is temporary since the real interest rate is actually positive?

[@boolinbison3379]

Thank you!!

[@DylanDupont]

where do you teach?

[@90sguyaimingskyhigh]

thank you, sir.

[@TxChiRho]

Very, very good.

[@zhangirburanbayev6678]

Amazing! You helped a lot. Thanks dude

[@sandunidilrukshika8188]

Thank you sir..

[@sharmila7361]

Thank you sir!!

[@RodtsThomas]

This helped me quite a lot Sir, thank you! :D

[@dredericktotem1245]

Being a newbie to this stuff, then I actually don't understand why the "other economists" recommend an increase in the money supply to "get the lenders lending again". Because surely at zero interest rates [ZLB] an increase in the money supply will do no good. As far as I understand [please correct me if I'm wrong], the purpose of increasing the money supply is to _decrease the interest rate_. If interest rates are high, the central bank buys up bonds from the commercial banks, which gives them a large supply of cash. This surplus they are then willing to loan at lower interest rates, encouraging customers to take out loans that has the net effect of increasing spending. This then bolsters the economy. However, in a liquidity trap, interest rates are at or near zero [correct me if I'm wrong, but *this is a fundamental condition of a "liquidity trap"*]. So further increases in the money supply achieve nothing. What I don't understand is why those other economists think that at this zero lower bound, increasing the money supply has any effect [FOR OBVIOUS REASONS!!!]. If it is like I just outlined [and I'm sure it's oversimplified], it seems daft to be stuck on such an obvious point. Or have I missed something?

[@nakcali]

thank you sir!

[@WibbilyWobblyWonder]

Thank you

[@andreawilliams5630]

thanks.... it made sense now

[@josephzemis9807]

Hi, I'm Wilford Brimley and I have type 2 adult onset diabeetus. I'm here to teach you about liquidity trap

[@challapavankumar4599]

Thank you sir

[@MrSmartStarfish]

THE WINK AT THE END

[@ivanbosnjak9240]

why does when interest rate goes down the bond prices go up?

[@marie8788]

thank you so much I wish you were my teacher

[@leratolikhomo1649]

Great...!

[@dyyddson]

thanks, the only way i understood this was because yuou mentioned bonds. ye!

[@KhatuShyamji1105]

nicely explained

[@TMKFilmsCH]

Got it, thanks!!

[@KUfraskins]

We’re there

[@mrvendetta123]

I thought that the FED could still create inflation in a liquidity trap by injecting money by making prices go up and the dollar diminish. The FED even says that is the only way to get out of the liquidity trap since it will cause people to spend the money they are "hoarding". The FED says that people will spend more instead of save since they will see no point in having high savings when the dollar is diminishing in value.

[@dm8411]

Well the US is in real negative interest rate now with QE4 just beginning. What happens when you have negative real interest rates while continuing to increase the money supply.....runaway inflation. Pretty easy to get from 2.1% to 4% in 1 year. The Fed could then try winding back the balance sheet and put up rates but we got a sneak peak of that in early 2019 when the s&p almost went into a bear market. And that was just a modest adjustment.

[@elifouts9179]

If interest rates are low doesn’t that create an incentive for firms to borrow money and expand, therefore, increasing aggregate demand? Why does increasing the money supply in the liquidity trap not help the economy?

[@rogerstrickland4004]

The Liquidity Trap is in the context of the FED having tried to move the economy out of a severe recession/depression; they have dropped interest rates down, again and again. However, businesses have become pessimistic, consumers are either unemployed or afraid of becoming so, and so consumption spending is very low as well. Why borrow money - even at low interest rates - when you have no/few customers/sales? This is also called the 'Inelastic Investment demand" - business expectations are low/negative and until they see sales begin to return, they are reluctant to borrow.

[@tommiveceti]

I guess if we keep borrowing money with 0% real interest rate, Md will shift up and eventually raise the i back to equilibrium ? Anyway, thank you for the video sir !

[@charliemills1337]

tracking all the way drill sgt

[@bibibibodde5802]

Thank you sir, I wish you we

[@hugosalinasaliaga5266]

2019: why is the government keep saying the economy is 'hot', yet there is no sign of higher inflation (above 3%). Hence, what is does a 'hot' economy real look like?

[@colinallcars5239]

Jan 2021.... it would appear we're in a Liquidity Trap now. Super low rates, more QE and no inflation.

[@tothefxckinmoon4540]

what a change a year makes.....

[@GanjaPharmzor]

Care to elaborate on how federal cash injections only increase economic problems? ..

[@porsenthamilrajathilagam5773]

Voice is not clear to listen.

[@54Aakash]

Good

[@foleydvm]

can't the interest rates go negative? didn't japan just do this?

[@jeevanjohnmusic]

Strickland is back to the future.

[@bibibibodde5802]

*were my professor :)

[@jiteshab]

wellexplained than other

[@bjornjohansson9900]

I Wish the Swedish central bank had watched this before they went bananas on our money supply and trashed our currency 😳