I was scared at the end 🔊😨😨😨☈ as I was busy with peaceful listening... thanks for nice explanation it was a real addition to all other videos on net...
My take is sovereign debt has required interest rates to drop. This and QE has lead to an enormous asset bubble, not filtering to consumer demand and industrial capacity.
It's indicative of what happened in the real economy post financial crash. Interest rates were extremely low but firms did not have the confidence to borrow money in order to invest.
Isn't it more to do with the demand for money becoming elastic as the interest rate approaches 0 and increasing the money supply therefore not being able to lower the interest rate any further rather than inelastic investment demand?
Hi, of course, there are two aspects. The first relating to the demand for money, and the second to low interest elasticity of demand for capital investment spending. I've only covered the latter here.
Fascinating in arrears to see how the problem seemed so big and obvious in 2017. Compared to now, what is there to say? You need to a totally different scale it seems. Is this economy still rational? Can it even be described in rational models like this anymore?
And what about the Investment demand curve - can we conclude that it is even less elastic, thus even steeper now? What happens when it reaches close to zero? And can we rely on GDP figures are true, measuring the real economy correctly or is that too fake, including substantial amounts of subsidies to the corporate sector as well as furlough income support? So many questions.
Nice video but I think what you are talking about it the investment trap not the liquidity trap. In a liquidity trap when the interest rate is very low, increasing Money supply does not decrease interest rate further. Investments trap is exactly what you're talking about.
Wouldn't the IS curve be very inelastic? If investment is hardly influenced by a change in the interest rate, a lower interest rate would not lead to much more demand and thus not to much more output. Hence, a shift in the LM curve to the right due to increased money supply would then only lead to a small shift (or none if the is curve is completely inelastic) in GDP due to an IS curve that is almost vertical. I am not sure, that's just what I came up with in regard to the liquidity trap.
If investment is completely insensitive to the rate of interest, the IS curve will be vertical. A vertical IS translates into a vertical AD curve; a fall in the price level which increases the real money supply and brings with it a fall in the interest rate will have no consequential effect on investment. If you are studying economics at university, I recommend the following text re. IS/LM analysis : Macroeconomics and the Wage Bargain by Wendy Carlin and David Soskice : ISBN 0198772440
Used your videos a lot during A-Levels and I'm still looking at them during my second year of economics at university, thanks for the help!
That's brilliant - hope the economics is going well.
Thanks for letting me know - it's a great encouragement.
I was scared at the end 🔊😨😨😨☈ as I was busy with peaceful listening... thanks for nice explanation it was a real addition to all other videos on net...
Daniel Craig the Economist?
lol
Thank you so much! I finally understand this concept.
Top notch, mate!
Glad it was helpful
Great video, thanks. After reading many articles I wasn't able to understand, until I saw this video and graphical representation.
Thanks. Glad it was helpful.
Who’s here thanks to the 2021 liquidity trap.
Despite of It, money supply would be a speculation in terms of quality,quantity and ratio
The liquidity trap also involves the perfectly elastic part of the money demand curve
Indeed it does
You are awesome! Thanks a lot
Glad it helped!
When you have a lecture at noon and have to be at a casino (with a license to kill) in the evening.
I absolutely pooped myself at the outro!
Apologies! I've removed that from more recent uploads!
Nevertheless, it was a really good video thank you so much!
Glad it was useful!
Great video - thanks for sharing!
Really nice, I'm a economics brazilian study and I'm enjoying whatching your videos
Pontificia Catolica Thank you. Glad you are finding the videos useful!
great video. Thanks a lot for clearing the doubt
Glad it was helpful!
My take is sovereign debt has required interest rates to drop. This and QE has lead to an enormous asset bubble, not filtering to consumer demand and industrial capacity.
Ok
It's almost as though artificially lowering interest rates is stupid :D.
How did you get the orange Id2 line? in the investment demand graph?
It's indicative of what happened in the real economy post financial crash. Interest rates were extremely low but firms did not have the confidence to borrow money in order to invest.
Thanks you sir, please tell us lp in saving terms
Isn't it more to do with the demand for money becoming elastic as the interest rate approaches 0 and increasing the money supply therefore not being able to lower the interest rate any further rather than inelastic investment demand?
Hi, of course, there are two aspects. The first relating to the demand for money, and the second to low interest elasticity of demand for capital investment spending. I've only covered the latter here.
Great explanation.Thanku
Fascinating in arrears to see how the problem seemed so big and obvious in 2017. Compared to now, what is there to say? You need to a totally different scale it seems. Is this economy still rational? Can it even be described in rational models like this anymore?
And what about the Investment demand curve - can we conclude that it is even less elastic, thus even steeper now? What happens when it reaches close to zero? And can we rely on GDP figures are true, measuring the real economy correctly or is that too fake, including substantial amounts of subsidies to the corporate sector as well as furlough income support? So many questions.
Nice video but I think what you are talking about it the investment trap not the liquidity trap. In a liquidity trap when the interest rate is very low, increasing Money supply does not decrease interest rate further. Investments trap is exactly what you're talking about.
Again a very good clear explanation
Thanks ... pleased it was helpful.
Really useful video! How does this look on the ISLM model? Not too sure I understand the graphs I find online. Any help would be of great use!
IS/LM - you must be an undergraduate?
Wouldn't the IS curve be very inelastic? If investment is hardly influenced by a change in the interest rate, a lower interest rate would not lead to much more demand and thus not to much more output.
Hence, a shift in the LM curve to the right due to increased money supply would then only lead to a small shift (or none if the is curve is completely inelastic) in GDP due to an IS curve that is almost vertical.
I am not sure, that's just what I came up with in regard to the liquidity trap.
If investment is completely insensitive to the rate of interest, the IS curve will be vertical. A vertical IS translates into a vertical AD curve; a fall in the price level which increases the real money supply and brings with it a fall in the interest rate will have no consequential effect on investment.
If you are studying economics at university, I recommend the following text re. IS/LM analysis :
Macroeconomics and the Wage Bargain by Wendy Carlin and David Soskice : ISBN 0198772440
Amazing, thank you.
Glad you liked it!
Amazing video👍
Glad it was of help.
this has come true in the US
Ralph Fiennes the Economist?
Excellent ! But buy a mike...
Thanks.
So this is why monetary policy may not work to fix a deep recession?
Should not agrregate demand be upward sloping
AD curves slope downwards from left to right.