The bank of England has switched from interest rate cuts to “quantitative easing
ID: 1219496 • Letter: T
Question
The bank of England has switched from interest rate cuts to “quantitative easing.” This policy involves buying bonds from commercial banks in the hope that these institutions will again lend in vast quantities to businesses and individuals after sitting tight since the credit crisis erupted in 2007.
a) what terminology would most economists use to describe "quantitave easing"
b) how is this supposed to induce banks to begin lending?
c) why would commercial banks be sitting tight since the 2007 crisis?
Explanation / Answer
a.
The terminology is “expansionary monetary policy”. This is the way of increasing money supply in the market. Buying bonds from commercial banks increases loanable funds in their hands. It pulls down interest rates and increases investments in the market, which improves the economy.
b.
It induces banks to begin lending because of having excess amount of money in their hands. Banks would like to earn interest by providing loans to the public.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.