Monetary Policy

Question 1

Quantitative easing

Answer 1

• supply more money
• use money to buy financial assets from high-street banks
• ^^ increases high-street banks money supply (more to lend)
• increase C, I, multiplier
• depreciated exchange rate (increased supply) - more competitive exports - increase AD

Question 2

Quantitative easing eval

Answer 2

• causes increase in price level due to multiplier
• could thus lead to hyperinflation (could outweigh increase in real GDP)