Question

1. Explain what Quantitative Easing means, how it works, where and when this policy was used. Was QE an appropriate policy option? Can you suggest a different policy that could be used by the Fed or the Government to address the same problem?

Answer 1

Quantitative Easing is unconventional form of monetary policy where central banks tend to follow large scale open market operation when interest rate is zero or approaching to zero.

Bank makes direct purchase of government securities thereby increasing liquidity in economy and it assists in fighting against recession.

It was used during the economic crisis of 2008. Fed Reserve used monetary policy or quantitative easing extensively. it indeed proved beneficial to economy.

Instant impacts of quantitative easing can not be disputed in USA but later on many economists raised concerns over the effectiveness of quantitative easing citing potential impacts on inflation and growth. they argue that fiscal policy is right option to deal with recession effectively. Quantitative easing does not address the problem of production or supply appropriately.