A-Level Economics | Quantitative Easing
Expansionary monetary policy is when the central bank increases money supply in order to increase aggregate demand in the economy. They traditionally do this by reducing interest rates.
- quantitative easing is when
- the central bank creates money electronically
- the central bank uses this to buy back government bonds from commercial banks (they basically lend this money to banks)
- banks willing and able to lend more money
- money supply increases in the market
- interest rate falls
- consumer borrowing increase
- when the bank pays back the money to the central bank, it gets deleted.