Quantitative Easing (QE) involves:

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BlackTom AI · Accepted Answer

The question at hand is: Quantitative Easing (QE) involves:

First, I note that the provided data includes an answer designation "b. Large-scale bond purchases by the Central bank" but the list of answer options is empty, so I cannot directly analyze each alternative option as presented. Nevertheless, I can explain the key concept and why the stated option is the typical description of QE.

Understanding QE: Central banks implement quantitative easing as an unconventional monetary policy tool primarily used when standard policy rates are near zero and conventional stimulus is insufficient. The core mechanism is the central bank purchasing large quantities of long-term securities (most commonly government bonds) from the financial markets. This asset purchase increases the monetary base, injects liquidity into the banking system, lowers long-term interest rates, and supports broader financial conditions to encourage lending and investment.

Why the described option is correct in standard practice: Large-scale purchases of bonds by the central bank directly implement QE, expanding central bank balance sheets and increasing reserves held by banks. This expansion is intended to lower yields on those securities and compress term premia, signaling that the central bank is committed to easing financial conditions across the economy.

Why other potential options (in a typical set) would be incorrect, conceptually:
- If an option claimed QE involves only cutting policy rates without asset purchases, that would be inaccurate, because QE is specifically associated with asset purchases and balance sheet expansion, not just rate cuts.
- If an option suggested QE funds fiscal deficits directly or distributes money to households, that would mischaracterize QE’s mechanism; QE shapes the financial system and credit conditions, not direct fiscal transfers.
- If an option described QE as selling assets to shrink the monetary base, that would be the opposite of QE. QE relies on asset purchases, not sales, to inject liquidity.

In summary, the standard, widely accepted description of QE is that it involves large-scale purchases of long-term securities, especially government bonds, by the central bank to inject liquidity and lower borrowing costs. This aligns with the given answer designation, even though the explicit option list is missing from the data provided.

Quantitative Easing (QE) involves:

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