Quantitative Easing Flashcards
What is Quantitative Easing
Quantitative Easing (QE) is a non-conventional monetary policy where a central bank creates new money to buy financial assets (such as government bonds) from commercial banks and other financial institutions. The aim is to increase the money supply, lower interest rates, and stimulate economic activity.
How does QE work
Central bank buys assets (usually government bonds) from commercial banks.
Increased demand for bonds increases the price, leading to lower interest rates
Commercial banks then have more money to lend to businesses and households.
Increased lending should stimulate investment and consumption, supporting aggregate demand.
The goal is to boost economic activity and raise inflation to the target level.
Examples of Central Banks using QE
Bank of England (2010s): During and after the 2008 Global Financial Crisis, the Bank of England implemented quantitative easing to help stimulate the UK economy. It bought government bonds and other assets to increase the money supply and lower borrowing costs.
US Federal Reserve (2008 onwards): The Federal Reserve also engaged in QE after the financial crisis to stimulate economic recovery by increasing the money supply and pushing down interest rates.
