ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Quantitative easing (QE) is a monetary policy employed by governments and central banks to decrease interest rates, increase the money supply, or boost investment by buying government or corporate securities. The primary goal of QE is to lower interest rates and spur economic growth.

Detailed explanation-2: -We do that by changing interest rates to influence what happens in the economy. When we need to reduce the rate of inflation, we raise interest rates. Higher interest rates mean borrowing costs more and saving gets a higher return. That leads to less spending in the economy, which brings down the rate of inflation.

Detailed explanation-3: -The purpose of this operation is to ease the availability of credit and to reduce interest rates, which thereby encourages businesses to invest more and consumers to spend more. The selling of government securities by the Fed achieves the opposite effect of contracting the money supply and increasing interest rates.

Detailed explanation-4: -With QE, a central bank purchases securities in an attempt to reduce interest rates, increase the supply of money and drive more lending to consumers and businesses.

Detailed explanation-5: -Quantitative easing creates new bank reserves, providing banks with more liquidity and encouraging lending and investment.