Question

QUESTION 10 Select all that are true regarding Quantitative Easing (QE): QE is a theoretical but largely untested expansionary monetary policy at the zero lower bound of interest rates QE is expressly designed to depreciate the domestic currency via increases in the supply of the DC, which will decrease the relative price of exports, thus increasing exports while increasing the relative price of imports, thus decreasing imports. Both of these results will increase domestic production (Y). increasing the demand for the factors of production, increasing incomes, and starting a virtuous circle of economic growth The risks of QE include uncertainty over inflation expectations since it has never been done and it involves massive increases in the money supply, a lack of incentives to borrow since interest rates are so low for so long and a disincentive for banks to lend due to regulatory uncertainty QE relies on a reflation of asset prices to provide incentive to asset holders to increase purchases (hence aggregate demand) while adding liquidity to banks so that they will be more likely to lend to the economy

Answer 1

Option B, C and D are correct, Option A is wrong because this has been tested in subprime crisis in 2008 and was largely successful. This didn't increased inflation in US but the lending by the banks were low due to uncertainity. The answer is B,C and D.