Liquidity Trap: Definition & Graph


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What is a liquidity trap?

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1. What is one way the government can increase their money supply?

2. Why would an investor not want to loan money to the government?

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About This Quiz & Worksheet

Discover how much you understand about liquidity traps via these study assessments. Included are quiz questions focusing on the definition of a liquidity trap and the ways in which a government might increase their money supply.

Quiz & Worksheet Goals

Use these tools to find out how well you know how to:

  • Understand a reason for an investor not to loan money to the government
  • Interpret a given graph
  • Explain liquidity

Skills Practiced

You will practice the following study skills:

  • Making connections - use understanding of the concept of a money supply and how it is connected to the government
  • Defining key concepts - ensure that you can accurately define main phrases, such as a liquidity trap and liquidity
  • Information recall - access the knowledge you've gained regarding how a government could potentially increase their money supply

Additional Learning

For more about this subject, make use of the lesson entitled Liquidity Traps: Definition & Graph. The lesson covers the following objectives:

  • Understand how a bond matures
  • Explain a money market account
  • Assess how a liquidity trap works in the real world