- Quantitative Easing is a form of unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy (like lowering interest rates) is no longer effective (e.g., when interest rates are near zero). - It involves the central bank purchasing long-term securities from the open market to increase the money supply and encourage lending and investment. This injects liquidity into the financial system. - It is distinct from traditional monetary policy aimed solely at controlling inflation via interest rates, and it is not a fiscal policy tool used by the government.
Which one of the following best describes the term 'Quantitative Easing'?
Asked in UPSC CAPF 2010 · Topic: Money & Banking (Monetary Policy: Objectives, Instruments (quantitative and qualitative), and Transmission Mechanism)
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Answer: A. It is a policy tool used by central banks to inject liquidity into the financial system.
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