Introduction. What will monetary policy affect? Expansionary monetary policy. Expansionary monetary policy. Contractionary monetary policy. Contractionary monetary policy. EVA. How does monetary policy work? Money Market diagram. 3 tools the MPC use. Monetary policy transmission mechanism (diagram) Monetary policy - transmission mechanism #1. Monetary policy - transmission mechanism #2.
What is quantitative easing? Image copyright Getty Images Governments and central banks like there to be "just enough" growth in an economy - not too much that could lead to inflation getting out of control, but not so little that there is stagnation. Their aim is the so-called "Goldilocks economy" - not too hot, but not too cold. One of the main tools they have to control growth is raising or lowering interest rates.
Lower interest rates encourage people or companies to spend money, rather than save. But when interest rates are at almost zero, central banks need to adopt different tactics - such as pumping money directly into the financial system. This process is known as quantitative easing or QE. How does it work? The central bank buys assets, usually government bonds, with money it has "printed" - or, more accurately, created electronically. It then uses this money to buy bonds from investors such as banks or pension funds. What are the risks? Who has tried QE? Has QE worked? Are there any losers from QE? QE introduction + information on the 09 recession. Steps of Quantitative Easing.