Th2.6: Problems with Quantitative Easing

Question 1

What are the five problems of quantitative easing?

Answer 1

hyperinflation
second hand goods
higher asset prices = higher consumption
share prices
too dependent

Question 2

Hyperinflation

Answer 2

it is very risky and, if not controlled properly, could cause high inflation and even hyperinflation

Question 3

Second hand goods

Answer 3

others say it would only lead to increased demand for second hand goods which pushes up prices but does not increase aggregate demand (e.g not lead to more houses being built but second hand houses becoming more expensive)

Question 4

Higher asset prices = higher consumption

Answer 4

there is no guarantee that higher asst prices lead into higher consumption through the wealth effect, especially if confidence is low

Question 5

Share prices

Answer 5

had a large effect on the housing market by stimulating demand and leading to rapid price rises since 2013, helping to worsen the issues of geographical mobility. also led to rising share prices, increasing inequality since the rich grow richer and not the poor

Question 6

Too dependent

Answer 6

it was not meant to be permanent and there are concerns that banks and economies are too dependent on quantitative easing, particularly within the Eurozone