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Economics vocabulary · Central Banks and Interest Rates

Liquidity

Meaning in economics, with examples

/lɪˈkwɪdəti/nounCommon term

In economics, liquidity means: How easily money is available in the financial system, or how quickly an asset can be turned into cash without losing value.

In Turkish: likidite

How it is used

Central banks provide or drain liquidity through loans to banks and open market operations. A liquidity crunch happens when banks suddenly cannot borrow. Cash is the most liquid asset; a house is illiquid. The adjective is liquid.

Example sentences

  1. The central bank injected liquidity into the banking system to calm the markets.

  2. Small companies often face liquidity problems even when they are profitable.

Common collocations

  • inject liquidity
  • provide liquidity
  • liquidity crunch
  • excess liquidity
  • drain liquidity
  • central bankThe national institution that issues a country's currency, sets the main interest rate and works to keep prices and the financial system stable.
  • money supplyThe total amount of money circulating in an economy, including cash and bank deposits, measured with categories such as M1 and M2.
  • creditMoney that banks and other lenders make available to people, firms or governments, which must be paid back later, usually with interest.
  • financial crisisA sudden and serious breakdown in the financial system, for example when banks fail, asset prices collapse or a country can no longer borrow.
  • quantitative easingA policy in which a central bank creates new money to buy large amounts of government bonds or other assets, aiming to lower long-term interest rates.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Central Banks and Interest Rates

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This page explains English vocabulary for learners. It is not financial advice.