An explanation of how quantitative easing works in theory and practise.
Readers Question How is quantitative easing expected to benefit the UK economy looking at the current situation of the economy.
Readers Question: One more, is quantitative easing and stimulus package is the same?
The stimulus package refers to expansionary fiscal policy. This is tax cuts and government spending increases designed to increase aggregate demand through higher government borrowing.
Quantitative easing involves increasing the money supply through the creation of money.
The fear is that the UK economy is declining very rapidly. GDP growth is forecast to be -3.8% this year. Conventional policy (cutting interest rates and cutting taxes) have failed to stimulate the economy. Quantitative easing is being used to avoid the deflationary pressures which threaten the economy.