Push On A String

AAA

DEFINITION of 'Push On A String'

When monetary policy cannot entice consumers into spending more money or investing in an economy, even if monetary policy is loosened to to put more money into peoples' hands. This term is often attributed to noted economist John Maynard Keyenes.

INVESTOPEDIA EXPLAINS 'Push On A String'

If the core demand doesn't exist to induce people to part with their money, it can't be forced through monetary policy. Trying to do so is like trying to "push on a string".

Such a situation occurred during the Great Depression in the 1930s and in Japan during the late 1990s when interest rates were about 1%. This situation is sometimes referred to as a "liquidity trap" and explains why central bankers do not attempt to lower rates to levels approaching zero. To lower rates to this level would eliminate monetary policy's power to influence economic growth and consumption.

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Money Supply

    The entire stock of currency and other liquid instruments in ...
  3. Gibson's Paradox

    An economic observation made by J. M. Keynes during the period ...
  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) ...
  5. Liquidity Trap

    A situation in which prevailing interest rates are low and savings ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
RELATED FAQS
  1. What are the advantages of free trade over mercantilism?

    Free trade provides advantages over mercantilism for individuals, businesses and nations. A key advantage of free trade for ... Read Full Answer >>
  2. Are all fixed costs considered sunk costs?

    In accounting, finance and economics, all sunk costs are fixed costs. However, not all fixed costs are considered to be sunk. ... Read Full Answer >>
  3. How can industrialization affect the national economy of less developed countries ...

    Industrialization – the period of transformation from an agricultural economy to an urban, mass-producing economy – has accompanied ... Read Full Answer >>
  4. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>
  5. What is the variance/covariance matrix or parametric method in Value at Risk (VaR)?

    The parametric method, also known as the variance-covariance method, is a risk management technique for calculating the value ... Read Full Answer >>
  6. What does it signify about a given product if the consumer surplus figure for that ...

    High consumer surplus for a particular product signifies a high level of utility for consumers and may carry some implications ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Economics

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  4. Active Trading

    Introduction To Stationary And Non-Stationary Processes

    What to know about stationary and non-stationary processes before you try to model or forecast.
  5. Economics

    What is a Capital Account?

    Capital account is an economic term that refers to the net change in investment and asset ownership for a nation.
  6. Economics

    Understanding the Fisher Effect

    The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate.
  7. Fundamental Analysis

    Explaining the Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment or portfolio.
  8. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  9. Economics

    Gambling on Macau: Too Risky?

    Macau was once heralded as the new Las Vegas for casino investors. Is it too late?
  10. Economics

    When To Expect Fed Liftoff Now

    “When will the Fed raise interest rates?” That has been the question of many investors since the Fed indicated it was prepared to end its zero rate policy.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center