In textbook economics, lower interest rates typically spur higher investments. Money is cheap. So the assumption is that people, banks and companies will spend more, therefore helping the economy grow.But that doesn't always work. Sometimes cutting the rate of interest, even to zero, won't necessarily pull an economy out of a recession. British economist John Maynard Keynes called this the liquidity trap -- when virtually everyone becomes so risk averse that banks would rather sit on their cash than offer credit. And even if banks start lending more, people wouldn't want the...
Source: http://www.realclearpolitics.com/2011/05/09/housing_market_is_caught_in_a_liquidity_trap_255157.html
Daniel Inouye David Vitter Debbie Stabenow Dennis Hastert Dennis Kucinich
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