Quantitative Easing Flashcards
When was quantitative easing first used
2009 by the Bank of England
What does QE used for
To increase the supply of money in the banking system
What are the aims of QE
Support AD and avoid a recession becoming a deflationary depression
Instead of printing real money for QE what does the bank do
Uses money to buy government bonds
Why are there doubts about the effectiveness of quantitative easing
Bank lending has been unable to recover since the end of the recession - the 2015 QE programme totalled £375 billion
How is quantitative easing meant to work
-increased money
-used to by financial assets (gov bonds)
-more demand = higher prices for assets
-long term interest rates fall
= stimulates economy
Consequences of low interest rates for the distribution of income and wealth
- real income of savers fall
- disposable incomes of mortgage payers increases
- higher demand for housing - value of property increases
In summary what happens when interest rates fall
There is a re-distribution of income away from lenders (who receive less) towards those with variable rate loans
Arguments that low interest rates are helping UK macro performance
- helps maintain consumer and business confidence
- appreciation in the pound
The argument against low interest rates
- savers have a negative effect
- unsustainable housing boom
