With reference to Quantitative Easing consider the following statements 1 Under this policy the cent...........

Economic Affairs Money Supply and Monetary Policy

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With reference to Quantitative Easing, consider the following statements:

1. Under this policy, the central bank sells government securities to increase interest rates in the economy.

2. It can lead to an inflation in the economy.

Which of the statements given above is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Statement 1 is not correct. Quantitative easing is an unconventional monetary policy in which a central
bank purchases government securities or other securities from the market in order to lower interest
rates and increase the money supply. Quantitative easing increases the money supply by flooding
financial institutions with capital in an effort to promote increased lending and liquidity.
o Statement 2 is correct. If central banks increase the money supply too quickly, it can cause inflation. This
happens when there is increased money but only a fixed amount of goods available for sale when the
money supply increases.