Question

1. What is QE (Quantitative Easing)? Explain QE1, QE2, and QE3.

Continuation from #1. As a U.S. citizen, what would be the benefits that you can possibly gain given the expansionary monetary policy, such as QE1, QE2, and QE3?

Answer 1

Part A)

Quantitative Easing is a process in which the Federal Bank of the country engages in long term purchase of government assets. It is one of the less used monetary policy tools which is primarily used in a situation wherein inflation rate is too low and the market is getting lesser or even negative returns. When the federal bank purchases these securities, it helps increase the flow of capital in the economy as they are purchased for a predetermined price.

This strategy was primarily used during the recession of 2008 in the United States and is seen as one of the key contributors which helped in easing the pressure which was created in the market due to the real estate and banking crisis which reduced the capital availability in general.

The money that was infused into the economy in the United States using quantitative easing was in cycles which are known as Q1, Q2 and Q3 during the period.

Q1 happened in late November 2008 and the Federal Bank infused 600$ Billion and increased the money supply in the economy. By 2010 the pressure on the markets began easing out but the government still felt that further expansion was required to reduce the effects of recession even further. A second round of infusion of around 500$ Billion was done which helped ease the pressure even further.

Q3 was done in the year 2013 in which the Federal Bank set a monthly target of infusing 40$ Billion and the same was followed till late 2015.

Part B)

During an expansionary monetary policy, as a US resident, the possibility to invest your savings increases. This is because banks start offering loans to the general public at a relatively lower rate of interest which relatively makes starting newer enterprises relatively easily. This cause profits for those who want to engage in new business venture. Once the market demand eases out with monetary expansion, companies can look to increase their scales of operations which is also helpful.

For the working class, expansionary policies come with increased opportunities of getting an employment as companies begin to grow and have newer opportunities to look forward to. With increase in income from new sources of employment, people begin demanding more and their quality of life increases.

Please feel free to ask your doubts in the comments section if any.