Quantitative Easing (QE) involves:

Question

BlackTom AI · Accepted Answer

The question asks: Quantitative Easing (QE) involves:
Option a: 'Increasing tax rates' would be a fiscal policy tool used by a government, not a monetary policy action. QE is not about changing taxation, so this statement misattributes policy levers.
Option b: 'Large-scale bond purchases by the Central bank' correctly describes QE. Central banks buy long-term securities to inject liquidity into the banking system, increase the money supply, and push down long-term interest rates, which is the core mechanism of QE.
Option c: 'Reducing government spending' is a fiscal consolidation move and a policy stance aimed at budget balance, not a central bank balance sheet operation. QE does not involve directly reducing or adjusting government expenditures as its primary tool.
Option d: 'Raising interest rates' is a conventional monetary tightening step. QE, in contrast, is typically pursued when interest rates are already low or near zero, aiming to lower yields further and encourage borrowing; increasing rates would counteract the purpose of QE.
In summary, only option b captures the essence of QE as a central bank activity involving large-scale asset purchases, whereas the other options describe different policy instruments outside the QE framework.

Quantitative Easing (QE) involves:

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