Quantitative Easing Analysis

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Quantitative Easing, as defined by Investopia, is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase money supply. In short, in times when standard monetary policy has become useless, this is used by central banks to help stimulate the economy. Quantitative easing is used when short-term interest rates are close to that of zero, and no new money is needed to be printed in the process. This is used to increase an institutions money supply by adding additional capital to use towards lending.

As hard as it is to believe there is a finite amount of cash floating around any economy, a large portion of the money in a financial
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Open Market Operations is when the Federation chooses to buy or sell bonds. It is through open market operations that interest rates are increased or decreased. If the Federation buys bonds, there is an increase in the money supply. As the money supply increases the interest rate will fall. Selling the bonds will cause a decrease in the money supply. The lower money supply will lead to an increase in the interest rate. The opportunity cost of selling a security is the interest rate. That is why they are negatively related. The Federal Open Market Committee, also well-known and recognized as the FOMC, monitors any increases or decreases of the circulation of money in the economy. The FOMC meets 8 times a year, and decides how the Federation should control the money supply. The committee is made up of a Board of Governors and the Presidents or Vice Presidents of 5 Federal Reserve Banks. With this, the discount rate is about “the interest rate on loans the Fed makes to banks” (Mankiw 337). Reserve requirements, as defined in the book, are regulations on the minimum amount of reserves that banks must hold against their deposits (Mankiw, p.338). This simply described that reserve requirements are what control how much money a bank is able to create to stimulate the economy. In comparison, Qualitative Easing is …show more content…
In his article, “Grand Central: Economists No Longer So Negative on Negative Rates”, Hannon mentioned how Quantitative Easing no longer seems as “unconventional” as it once did. With growth slowing, and inflation likely remaining low, policy makers might quickly be confronted once again with what is known as the zero lower bound. Until recently, it was thought that policy rates could not go negative, because there would be an immediate flight to cash, which can be thought of as a zero-interest bearer bond

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