Alternative Monetary Policy Tools: Understanding Quantitative Easing

The video explains quantitative easing (QE) as an alternative monetary policy tool used when interest rates are low. It details how the Bank of England creates money to buy financial assets, increasing the money supply without giving money away. The video covers the effects of QE on banks, trade, and consumer confidence, and explains the inverse relationship between asset prices and yields. It concludes with a discussion on QE's impact on government debt and future monetary policy developments.

What is the primary reason for implementing Quantitative Easing?

• To increase the Bank rate

• To directly give money to the public

• To stimulate the economy when interest rates are already low

• To decrease the supply of money

In the QE process, what does the Bank of England acquire from the market?

• Foreign currencies

• Gold reserves

• Corporate stocks

• Gilts

How does QE affect the liquidity of banks?

• It decreases liquidity by reducing reserves

• It has no effect on bank liquidity

• It improves liquidity by converting non-liquid assets to liquid assets

• It forces banks to hold more non-liquid assets

What is the expected impact of QE on the exchange rate?

• It depreciates the currency

• It has no impact on the currency

• It strengthens the currency

• It causes the currency to fluctuate unpredictably

What happens to the yield of financial assets when their market value increases due to QE?

• The yield decreases

• The yield increases

• The yield becomes unpredictable

• The yield remains unchanged

How does an increase in asset prices due to QE affect consumer confidence?

• It decreases consumer confidence

• It has no effect on consumer confidence

• It increases consumer confidence

• It makes consumer confidence unpredictable

What is the relationship between market value and yield of financial assets?

• No relationship

• Random relationship

• Inverse relationship

• Direct relationship

What is one potential benefit of the Bank of England holding government debt?

• It allows for potential internal default

• It forces the government to pay higher interest rates

• It decreases the government's financial security

• It increases the government's debt obligations

How do classical economists view the impact of QE?

• They see it as a stimulus that is beginning to unwind

• They believe it has no impact

• They view it as a temporary measure with no real effects

• They think it causes long-term economic decline

What future monetary policy tools are mentioned as developments beyond QE?

• Direct cash transfers to citizens

• Funding for Lending scheme and forward guidance

• Increasing the Bank rate

• Reducing government spending