Quantitative easing

Quantitative Easing: Increasing the money supply and using these electronically created funds to buy government bonds or other securities.

• Done by Central Bank

• Done by commercial Bank

• Done by Investment bank

• None of the above

Quantitative easing is a form of

• Expansionary fiscal policy

• Expansionary monetary policy

• Contractionary monetary policy

• Contractionary fiscal policy

QE is usually used .........– when base interest rates cannot be cut any further.

• Liquidity trap

• Financial crisis

• Recession

• Boom

The aim of quantitative easing is to increase economic activity by

• By selling bonds

• By encouraging bank lending, investment and therefore help improve the rate of economic growth.

• By decreasing the interest rate

• By reducing tax rate

Main aim of QE is

• decreasing the money supply

• Lowering the rate of interest

• Increasing interest rate

• Increasing the supply of money

QE works by creating money electronically that is similar effect to printing money....

• That is just an effect of increasing the supply of money

• That is similar effect to printing money in the form of cash

• That is increasing bank reserves which don’t need to be printed in the form of cash.

• That is more demand for money

When using Quantitative Easing the Central Bank uses extra reserves to buy ....

• Securities.

• Securities and bonds

• Certificate of savings only

• Only government bonds

Under QE buying securities achieves

• Dcreased liquidity the bank will then be more willing to lend cash

• Increased liquidity the bank will then be more willing to accept deposits

• Decreased liquidity Banks buys assets (bonds) for cash. Therefore banks see an decrease in their liquidity (cash reserves).

• Increased liquidity Banks sell assets (bonds) for cash. Therefore banks see an increase in their liquidity (cash reserves).

Under QE buying securities achieves......

• Higher interest rates.Buying assets reduce their interest rate. Lower interest rates on these securities may also encourage banks to lend rather than keep securities which are paying low interest.

• Lower interest rates. Buying assets reduce their interest rate. Lower interest rates on these securities may also encourage banks to lend rather than keep securities which are paying low interest.

• Higher interest rates. Selling assets increase their interest rate. Increasing interest rates on these securities may also encourage banks n keep securities which are paying high interest.

• Lower interest rates. Selling assets increase their interest rate. Increasing interest rates on these securities may also encourage banks n keep securities which are paying high interest.

Therefore the aim of QE is to

• Deflation

• Disinflation

• Decrease inflation

• Increase inflation