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What is Quantitative Easing?

What is Quantitative Easing?

Quantitative easing is a term used in finance and economics where a country’s central bank takes action to boost a country’s economy by increasing the supply of money. This is done when bank interests have gone to almost 0% and the desired result still has not been achieved.

Quantitative easing was first used in Japan to rescue its economy in early 2000, which did not produce satisfactory results. It was then tried by the US during the global financial crisis, as well as the UK.

Basically, quantitative easing is when the government decides to intervene by producing money out of nothing. For instance, a country’s central bank can produce $10 billion in order to pay for people to build public infrastructure, or by helping a bank out by buying available bonds that they cannot sell because of its high price. The money used to pay for this did not come from existing sources, but produced out of thin air.

Quantitative easing is met with a lot of skepticism, as its effectiveness has not been proven thus far. There are risks in employing quantitative easing in an economy, as it can lead to higher inflation or even hyperinflation, because although there is more currency going around, the amount of goods still remain constant.

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Posted by Beth B on Dec 10th, 2010 and filed under Economics, Featured. You can follow any responses to this entry through the RSS 2.0. You can leave a response via following comment form or trackback to this entry from your site