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Showing posts with the label QE

What is quantitative easing?

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Quantitative easing is when a government pumps 'new' money directly into the economy. It  does this is by buying assets - usually financial assets such as government and corporate bonds.  The financial institutions selling those assets (e.g banks) can then boost the economy by lending this new money to businesses. Why is QE unusual? The normal way a government stimulates economic growth is by a) reducing the cost of borrowing  b) lowering taxes, particularly on business investment. The problem in the current financial crisis has been that interest rates are already at historic lows. As a result some governments (notably the US and to a lesser extent the UK) have attempted to inject money directly into the economy.  The European  Central Bank has resisted QE until recently. Some would argue that this has been a factor in the weakness of the European economic recovery English Language 100 FAQ Teaching Pack   -  only £1.99 using discount code  CQDWKF0

What is the difference between fiscal and monetary?

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When economists talk about fiscal policy they are referring to raising and spending taxes. Monetary policy is what central banks do to control the amount of money in an economy. Normally they do this either raising/lowering interest rates. Raising interest rates restricts the amount of money circulating and should reduce inflation. Lowering interest rates encourages expenditure as there is more money available. But as everyone know these are not 'normal' economic times. Interest rates in the advanced western economies have fallen to close to zero - but the recovery remains this. To counter this some central banks have introduced something called quantative easing .  Put simply means pushing more money directly into the economy via the banks - see here for more details.