Are We in a Liquidity Trap?

Krugman, P. (2010). How much of the world is in a liquidity trap? Retrieved March 18, 2010 from: http://www.businessdictionary.com/definition/liquidity-trap.html

This article was written by columnist and economics professor Paul Krugman and in it he states that almost all advanced countries in the world, making up 70% of the world’s GDP, are in a liquidity trap. A liquidity trap is where rates are extremely low, but few want to borrow money for purchases or investments because they are afraid of the current and expected economy and their future. Krugman states that unconventional monetary policy is difficult; however, conventional policy calls for the Fed to lower the fund rate, but they cannot because rates are already at the zero lower bounds, therefore limiting the Feds ability to use conventional policy to improve the economy. Krugman is basically saying here that the Fed need to do some other things also, but that the zero lower bound needs to be lowered to give them more room to expand monetary policy. This is a good article for students and managers to read and they should further explore how the monetary policy works and how it can affect them.