Quantitative Easing (QE)

Quantitative Easing (QE) is a monetary policy tool used by central banks to stimulate the economy during periods of low inflation or economic stagnation. It involves purchasing government bonds and other financial assets from commercial banks to increase the money supply and lower interest rates, encouraging borrowing and spending. QE aims to boost economic activity when traditional policy tools, like lowering interest rates, are insufficient. While it can stimulate growth, QE also carries risks, such as creating asset bubbles and increasing long-term inflation.

Example

The Federal Reserve implemented several rounds of QE during the 2008 financial crisis, purchasing mortgage-backed securities to stabilize the housing market and stimulate economic recovery.