Understanding Quantitative Easing

The video discusses the 2007-2008 financial crisis and the central banks' response using monetary policy. It highlights the challenges of negative interest rates and introduces quantitative easing (QE) as an alternative. QE involves creating new money to purchase assets, stimulating economic activity by increasing asset prices and reducing interest rates. The video also notes the Bank of England's significant purchase of UK government bonds, internalizing a portion of the UK's debt.

What was a major challenge faced by central banks when trying to reduce interest rates during the financial crisis?

• Banks refused to cooperate.

• They were approaching negative interest rates.

• Interest rates were already too high.

• There was no demand for loans.

What is the primary action taken by central banks during quantitative easing?

• Increasing taxes

• Reducing government spending

• Creating new money to purchase assets

• Raising interest rates

How does quantitative easing affect asset prices?

• It has no effect on asset prices.

• It increases asset prices.

• It stabilizes asset prices.

• It decreases asset prices.

What is one effect of increased asset prices due to quantitative easing?

• Decreased consumer spending

• Increased consumer wealth and spending

• Higher interest rates

• Lower investment levels

What significant action did the Bank of England take during the period of quantitative easing?

• It purchased a large portion of UK government bonds.

• It stopped all asset purchases.

• It reduced taxes significantly.

• It increased interest rates.