Quantitative Easing

Question 1

Quantitative Easing (QE) — Key Points

Answer 1

Used when traditional monetary policy tools (like cutting interest rates) become ineffective (e.g., rates near zero).

Question 2

1

Answer 2

Central bank creates new money electronically (not physical cash).

Question 3

2

Answer 3

This money is used to buy financial assets such as government bonds, corporate bonds, and other securities from banks and financial institutions.

Question 4

3 By buying these assets, the central bank:

Answer 4

Increases demand for bonds, which raises their price.

This causes bond yields (interest rates) to fall, reducing borrowing costs.

Question 5

4 Lower borrowing costs encourage banks and businesses to:

Answer 5

Lend more money.

Borrow more for spending and investment.

Question 6

5

Answer 6

QE aims to boost consumer and business confidence by improving access to credit.

Question 7

6

Answer 7

Overall, this stimulates borrowing, spending, and investment, supporting aggregate demand and economic growth.