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Question

Explain the mechanics of expansionary monetary policy in termsof open market operations and the impact on interest rates,consumption and investment. What is quantitative easing (QE), andwhat are some pros and cons of using this non-traditional monetarypolicy approach?

Solution

(x) Expansionary xxxxxxxy policy

An xxxxxxxxxxxy xxxxxxxy xxxxxy increases xxx supply xx xxxxy,xxxxx xxx Central xxxx implements xy xxxx xxxxxx purchase xxxxxxxxxxxx securities. xx xxxxxy xx money xxxxxxxxx, interest xxxxxxxxx. xxxxx xxxxxxxx rate xxxxxx consumption xxxxxx xxx xxxxxxxxxxxxxxxx, which xxxxxx aggregate xxxxxx xx xxx economy.

(2) xxxx is x xxx-xxxxxxxxxxx xxxxxxxy policy xxxx when xxxxxxxxxxxxxxxxxxy xxxxxy xxxxx. A xxxxxxx Bank xxxxxxxxxx xx xy purchasing xxxxxxxxx quantity xx xxxxxxxxx xxxxxx from xxxxxxx financialinstitutions. xxxx xxxxxxxxx xxx credit xxxxxxx of xxxxx. xxxx, xyxxyxxx riskier xxxxxxxxx assets, xxxxxxx xxxx xxxxxx the xxxxxxxxyxxxx on xxx xxxxxx.xxxxxxxxx, xx results xx higher xxxxy xxxxxy xxx lower xxxxxxxxxxxxx.xx advantage xx xx xx that xx is xxxxxxxxx xxxx xxxxxxxxxxxxxxxxxxy policy xxxxxx increase xxxxy xxxxxy xxx decrease xxxxxxxxxxxxx. However, xx xx xxxxxxxxxx to xxxxxxxxx.

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