Quantitative easing

• When is Quantitative easing used?

  When the effect of reducing the interest rate has become muted
• The Quantitative Easing Process (Step 1 )


  The Interest rates are already very low (0.5% was a 300 year low), causing the central bank "Stroke of a Button" to increase their assets
• Quantitative Easing (Step 2 (purchase))

  The Central Bank purchases government bonds, corporate bonds and property, at a higher price then what they are sold
• Quantitative Easing (Step 3 (Yield))

  The yield on the bond decreases because a coupon rate of £5 out of £100 given is greater then £5 out of the £200 it was bought back for
• Quantitative Easing (Step 4 ( Debt Finance))

  This means that more corperate bonds are sold because the interest rate is lower, meaning that that firms have more money to invest
• Quantitative Easing (Step 5 (Consumption))

  Former bond holds, will have more disposable income, so consumption will increase
• Quantitative Easing (Step 6 (Highstreet banks))

  Borrowing is cheaper, so it encourages Highstreet banks to lend more, so they can maximise profit, which will increase consumption, and demand pull inflation
• Quantitative Easing (Step 7 (Insentive))

  People will have an insentive to spend before prices start to rise again, so Aggregate Demand will rise, increasing growth