Cryptocurrency Q&A
Is the LM model liquidity trap?
Is the LM model liquidity trap?
Giuseppe
Sat Aug 31 2024
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6 answers
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Excuse me, but could you elaborate on whether the LM model is indeed prone to experiencing a liquidity trap? It's an interesting notion that the intersection of money supply and the demand for money might lead to such an economic quagmire, where further monetary easing fails to stimulate the economy due to a perceived reluctance to invest or spend. I'm particularly curious about the conditions under which this scenario might unfold and how policymakers might address or mitigate the risks associated with a liquidity trap in the context of the LM model.
6 answers
Elena
Mon Sep 02 2024
This lack of response suggests that the economy has reached a state where additional liquidity does not stimulate further economic activity.
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GyeongjuGlorious
Mon Sep 02 2024
In contrast, a fiscal expansion, illustrated by the shift from the IS curve to IS'', generates a significant increase in output, moving it from Y* to Y'', without altering the interest rates.
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Carolina
Mon Sep 02 2024
The concept of a liquidity trap, as depicted within the framework of the IS-LM model, highlights a specific economic phenomenon.
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BitcoinWizardry
Mon Sep 02 2024
The fiscal expansion's ability to boost output underscores its effectiveness in overcoming the inertia created by the liquidity trap.
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PhoenixRising
Mon Sep 02 2024
When a monetary expansion occurs, represented by the shift from the initial LM curve to LM', it surprisingly fails to elicit any notable impact on the equilibrium interest rates or the overall output levels.
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