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...... The Liquidity trap situation occurs when investment profits from stocks or capital fall below expectations. When that happens, the next natural step is that people decrease their investing activities, which starts a recession, and cash assets in banks increase. Individuals and companies then go on holding cash because the expectation is that spending and investment will be low. This then is the self-fulfilling trap
Put yet another way, Keynes liquidity trap develops when circumstances exist where the interest rates for short-term investment is zero. In this situation, putting more cash into circulation does not impact at all on either output or prices......

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