Quantitative Easing
Definitions
- Quantitative easing is an occasionally used monetary policy, which is adopted by the government to increase money supply in the economy.
- QE is nothing but the open market operation.
- An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
Effects
- Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
- This strategy loses effectiveness when interest rates approach zero,
forcing banks to try other strategies in order to stimulate the economy.
- However, if the money supply increases too quickly, quantitative easing can lead to higher rates of inflation.
