ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The biggest danger of quantitative easing is the risk of inflation. When a central bank prints money, the supply of dollars increases.

Detailed explanation-2: -Quantitative easing may devalue the domestic currency as the money supply increases. While a devalued currency can help domestic manufacturers with exported goods cheaper in the global market, a falling currency value makes imports more expensive, increasing the cost of production and consumer price levels.

Detailed explanation-3: -This increase or decrease affects the ratio of that currency to other currencies in the market. Usually when the government follows the policy of quantitative easing (QE), it increases the money supply by creating new currency and pumping the same into the bond markets.

Detailed explanation-4: -Exchange rates will affect imports and exports, and thus affect aggregate demand in the economy. Fluctuations in exchange rates may cause difficulties for many firms, but especially banks. The exchange rate may accompany unsustainable flows of international financial capital.