Case of liquidity is the feature the fact that money is not offered with sinking interest rates no more for investments and thus is extracted from the economic circulation. The word is a fundamental idea of the economic theory of the Keynesianismus.

If the participants in the economy expect a rising interest rate, they do not buy additional (interest) securities, since their value would not fall during an interest increase and the risk of the depreciation a prospect on increase in value due to again falling credit interests opposes. Therefore money is spent neither on securities nor on goods. It is extracted from the economic circulation with speculative intention and in the so-called speculation cash held, disappears thus in the "“case of liquidity"”. Thus the danger of a deflation is connected.

The critical interest rate is the so-called Strike interest, which is not fallen below, because the Wirtschaftsubjekte does not invest no more despite the increase of its cash on hand in interest titles. The monetary policy of the central bank as means of the Nachfragestimulation becomes ineffective, because also with far falling interest the demand for securities does not rise. In this situation the state must become the setting in motion of the economy in motion, actively for example by an expenditure increase. Such a situation can occur, if the interest rate is close or exactly zero. An expenditure increase of the state due to case of liquidity means that the state can to be forced by the economy invested, in order to prevent a deflation.

The statement that the monetary policy is ineffective in the case of liquidity, applies however only to an expansive monetary policy. During a sufficiently large money supply lowering it is however possible that the restaurant subjects, over by the developed surplus demand on the money market further liquid to remain a part of its securities to sell, since acceptance in accordance with a surplus demand on the money market corresponds surplus-indicated as one on the stock market. Sinking courses draw however after the relationship KW=Z/i an interest rise. Such a policy is however only suitable to increase the Zinsniveau to thus leave case of liquidity. The overall economic income decreases/goes back (with interest-flexible investment demand), since now fewer investments are worthwhile.

Colloquially the term case of liquidity is used for the description of the phenomenon that enterprises do not get credits despite economic health.

Beside the case of investment and the cause for the equilibrium described by Keynes can be seen to inflexible wages here downward during underemployment.

Keynes assumes money is an imperishable property and that there cannot be such a thing like a "“negative interest rate"”. In an economic system however, in which the investors could hold their money only with loss in the speculation cash, thus the economic circulation not without disadvantages to extract could do it, would give it no to case of liquidity.

Articles in category "Case of liquidity"

We found here 28 articles.