Question

1. What is the US Federal Reserve's "Quantitative Easing" approach?

2. How does it work, and what is it trying to accomplish?

3. What are the risks of this approach?

4. Has it worked? How is success measured?

5. What is the "taper" of Quantitative Easing that is in progress now?

6. How has this tapering impacted the US economy?

7. Have other major countries used quantitative easing? What were their results?

8. What is "deflation"? Why is the Central Bank of Japan conceerned about it? What are they doing to prevent it?

Solution Preview

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1. Quantitative easing is a policy that is used when the standard monetary policy does not look effective. The central bank tries to increase the supply of money in the market through the purchase of specific amounts of financial assets from the private institutions and commercial banks. As there is an increase in the supply of money, the interest rates would decline. This strategy is used to stimulate growth in an economy. Generally assets of longer maturity are purchased in this strategy rather than short term bonds which...

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