Question

why did quantitative easing in 2008 cause for....(looking for probable cause)

- negative impact on long term and short term rates

- Impact on credit default swaps

- Impact on inflation expectations

Answer 1

Answer: 1st option

Quantitative easing:

This is the stimulus policy of the Federal Reserve in which an injection of money supply is done in the economy directly – suppose purchasing of government bonds from commercial banks.

This system is followed when the controlling of interest rates doesn’t work. Interest rates were almost 0% (zero) on 2008 but still borrowing didn’t increase, rather decreased. This was the negative impact, since people had negative future expectations. In order to ease, the central bank started purchasing government bonds for an increasing money supply in the economy.

answered by: anonymous