Quantitative easing

• What type of policy is quantitative easing (QE)?

  A big monetary policy
• In what scenario is QE typically adopted by advanced nations?

  When traditional monetary policy approaches have failed
• What is the main objective QE seeks to achieve when traditional monetary policies fail?

  To stimulate aggregate demand
• In the UK, during what economic event was QE adopted?

  The Great Recession in 2009
• What interest rate did the UK reduce interest rates to during the Great Recession?

  1. 5%
• What was a primary reason the reduction of interest rates to 0.5% failed in the UK?

  Low availability of credit
• What was a major issue during the Great Recession in the UK regarding commercial banks?

  Low access to Finance
• Apart from the availability of credit, what was another factor that contributed to the failure of traditional monetary policy during the Great Recession?

  Low consumer and business confidence
• Besides low confidence, what other factor hindered the effectiveness of lower interest rates during the Great Recession?

  Banks' unwillingness to lend
• What is the alternative approach to monetary policy when interest rate reductions fail?

  Direct increase in the money supply
• What is the method used to directly increase the money supply?

  Quantitative easing
• What key issue did the Bank of England face, even while cutting interest rates?

  Ordinary interest rates did not fall
• What does QE aim to improve regarding credit accessibility for banks?

  Makes it easier for banks to lend
• What is the intended effect of QE on overall interest rates charged to consumers?

  To reduce overall rates
• What is the potential impact of lowered interest rates on consumer behavior according to the text?

  May stimulate borrowing
• What is the first step in the process of quantitative easing (QE)?

  Central Bank electronically creates money
• According to the text, what is the money created used for in QE?

  To buy up financial assets
• Which financial asset was primarily bought up during QE in the UK?

  Government bonds
• What was the specific reason for buying up government bonds during QE?

  To disincentivize people to buy bonds
• What happens to the price of government bonds when the Central Bank buys them up?

  The price increases
• How does an increase in the price of a government bond affect its yield?

  The yield falls
• What does the interest rate on a Government Bond represent to the issuer?

  The cost of borrowing
• What choices do financial institutions have after receiving cash from the Bank of England?

  Re-package and deliver loans or invest
• If financial institutions invest in shares, what potential effect could this have?

  Wealth effect stimulate consumption/investment
• If financial institutions invest in corporate bonds, what happens to the price and yield of these bonds due to increased demand?

  Price rises, yield falls
• How does a reduced yield on corporate bonds affect commercial banks?

  Accessing Finance becomes cheaper
• How do commercial banks typically raise finance to issue loans?

  By issuing corporate bonds
• According to the text, how does QE impact banks' willingness to lend?

  Increases willingness to lend
• If market rates in the economy fall due to QE, what may be stimulated?

  Borrowing
• According to the text, what is disincentivized if market rates in the economy fall due to QE?

  Saving
• What is the intended impact of increased consumer spending and investment on the economy due to QE?

  Increasing AD and growth
• What was the primary intention of QE in relation to aggregate demand?

  Increase aggregate demand
• What did reports published by the monetary policy committee say was the effect of QE on market interest rates?

  Cut off 2 to 3%
• According to the text, what was the major intention of QE?

  Increasing borrowing, spending, investment
• According to the text, which yield falling has a big impact on interest rates in the economy?

  Corporate bond yields falling
• How does QE help access credit for commercial banks?

  Loads of money in corporate bond market
• If a country is experiencing a recession with near-zero interest rates, and its central bank decides to implement quantitative easing, what is the expected primary outcome?

  Increased lending
• During QE, if the yield on government bonds falls significantly, but the yield on corporate bonds remains high, what could be a possible reason?

  Low demand for corporate bonds
• If a central bank buys government bonds during QE, but commercial banks choose to hold onto the cash instead of lending, what could be a potential consequence?

  QE becomes less effective
• During QE, if financial institutions primarily invest in shares, which results in increased wealth for households, what is the most likely effect on the economy?

  Increased consumer spending