Quantitative Easing Flashcards
What is the main aim of QE
Support AD and avoid the risk of a recession becoming a deflationary depression
What does the Bank of England uses QE to do
Increase the base supply of money in the banking system and encourage banks to lend at cheaper interest rates i.e. to small & medium sized businesses
How is the money created
Not through literal printing- it is created by the central bank to buy government bonds
When did the Bank of England expand their quantitative easing programme
In the aftermath of the June 2016 Brecht vote in a bid to support confidence and lending in the financial system
What is the new money used for
To buy financial assets - mainly the purchase of government bonds
What does the higher demand for government bonds lead to
Higher prices for assets, rise in bonds lead to a lower yield (%) on government bonds
What is the effect of QE
Can cause a fall in long term interest rates e.g. mortgages and bonds
What does lower interest rates and increased cash in the banking system then do
Stimulate AD through a rise in consumption and investment
