Editing Recession (section)

===Liquidity trap===

A [[liquidity trap]] is a [[Keynesian]] theory that a situation can develop in which interest rates reach near zero ([[zero interest-rate policy]]) yet do not effectively stimulate the economy.<ref name="Eggertsson2018">{{cite book |last1=Eggertsson |first1=Gauti B. |title=The New Palgrave Dictionary of Economics |year=2018 |publisher=Palgrave Macmillan UK |isbn=978-1-349-95189-5 |pages=7929–7936 |chapter-url=https://link.springer.com/referenceworkentry/10.1057/978-1-349-95189-5_2482 |language=en |chapter=Liquidity Trap|doi=10.1057/978-1-349-95189-5_2482 }}</ref> In theory, near-zero interest rates should encourage firms and consumers to borrow and spend. However, if too many individuals or corporations focus on saving or paying down debt rather than spending, lower interest rates have less effect on investment and consumption behavior; increasing the money supply is like "[[pushing on a string]]".<ref name="CorreiaFarhi 2012">{{cite web |last1=Correia |first1=Isabel |last2=Farhi |first2=Emmanuel |last3=Nicolini |first3=Juan Pablo |last4=Teles |first4=Pedro |title=Unconventional Fiscal Policy at the Zero Bound: Working Paper 698 |url=https://www.minneapolisfed.org/research/wp/wp698.pdf |publisher=Federal Reserve Bank of Minneapolis |access-date=5 August 2022 |page=1 |date=August 2012}}</ref> Economist [[Paul Krugman]] described the [[Subprime mortgage crisis|U.S. 2009 recession]] and [[Lost decade (Japan)|Japan's lost decade]] as liquidity traps. One remedy to a liquidity trap is expanding the money supply via [[quantitative easing]] or other techniques in which money is effectively printed to purchase assets, thereby creating [[inflationary]] expectations that cause savers to begin spending again. Government stimulus spending and [[Mercantilism|mercantilist]] policies to stimulate exports and reduce imports are other techniques to stimulate demand.<ref name="Krugman 2009">{{cite book
| last = Krugman
| first = Paul
| year = 2009
| title = The Return of Depression Economics and the Crisis of 2008
| publisher = W.W. Norton Company Limited
| isbn = 978-0-393-07101-6
| url-access = registration
| url = https://archive.org/details/returnofdepressi00krug
}}</ref> He estimated in March 2010 that developed countries representing 70% of the world's GDP were caught in a liquidity trap.<ref>{{cite news |url=https://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is-in-a-liquidity-trap/ |title=How Much of the World is in a Liquidity Trap? |publisher=Krugman.blogs.nytimes.com |date=17 March 2010 |access-date=29 January 2011 |archive-date=24 April 2020 |archive-url=https://web.archive.org/web/20200424155051/https://krugman.blogs.nytimes.com/2010/03/17/how-much-of-the-world-is-in-a-liquidity-trap/ |url-status=live }}</ref>