ECONOMICS
MONETARY POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Open market operations
|
|
|
Quantitative easing
|
|
|
Either A or B
|
|
|
None of the above
|
Detailed explanation-1: -QE involves us buying bonds to push up their prices and bring down long-term interest rates. In turn, that increases how much people spend overall which puts upward pressure on the prices of goods and services. In total, we bought £895 billion worth of bonds. Most of those (£875 billion) were UK government bonds.
Detailed explanation-2: -The pension funds would sell the bonds to the Bank of England and in exchange, they would receive deposits (money) in an account at one of the major banks, say RBS. RBS would end up with the new deposit (a liability from it to the pension fund), and a new asset – central bank reserves at the Bank of England.
Detailed explanation-3: -To ensure that control of short-term interest rates is maintained when that reserves scarcity is reached, the Bank announced in August 2022 a new open market operation, the Short-Term Repo (STR).