Quantitative Easing Flashcards

1
Q

What is the main aim of QE

A

Support AD and avoid the risk of a recession becoming a deflationary depression

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2
Q

What does the Bank of England uses QE to do

A

Increase the base supply of money in the banking system and encourage banks to lend at cheaper interest rates i.e. to small & medium sized businesses

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3
Q

How is the money created

A

Not through literal printing- it is created by the central bank to buy government bonds

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4
Q

When did the Bank of England expand their quantitative easing programme

A

In the aftermath of the June 2016 Brecht vote in a bid to support confidence and lending in the financial system

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5
Q

What is the new money used for

A

To buy financial assets - mainly the purchase of government bonds

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6
Q

What does the higher demand for government bonds lead to

A

Higher prices for assets, rise in bonds lead to a lower yield (%) on government bonds

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7
Q

What is the effect of QE

A

Can cause a fall in long term interest rates e.g. mortgages and bonds

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8
Q

What does lower interest rates and increased cash in the banking system then do

A

Stimulate AD through a rise in consumption and investment

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