Th2.6: Quantitative Easing

Question 1

What is quantitative easing?

Answer 1

when the central bank buys assets in exchange for money in an attempt to increase the money supply

Question 2

What does ‘quantitative’ mean?

Answer 2

a set amount of money is being created and

Question 3

What does ‘easing’ refer to?

Answer 3

reducing pressure on banks

Question 4

What can quantitative easing prevent?

Answer 4

the liquidity trap, where even low interest rates cannot stimulate AD

Question 5

What is one way of buying assets?

Answer 5

for the Bank of England to simply increase the size of banks’ accounts at the Bank of England, called the ‘reserves’ which encourages them to lend money

Question 6

What did the Bank of England find following the financial crisis?

Answer 6

many banks preferred to keep their money in reserves rather than lending it out so buying assets from the bank did not have the effect they wanted

Question 7

What did the Bank do as a result of this?

Answer 7

bought securities or bonds from private sector institutions such as insurance companies, pensions funds and banks