What causes a liquidity trap?

Due to different causes like impending war, deflation, inadequate aggregate demand, or other such adverse events, people start hoarding cash. This is known as the liquidity trap. You can read about the RBI – Reserve Bank of India [UPSC Indian Economy Notes] in the given link.

Further readings:

  1. Monetary Policy – Objectives, Roles and Instruments
  2. Open Market Operation (OMO) – Two Kinds, REPO and PEMO

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