When the Fed uses quantitative easing, it is
[ Select ]
selling
buying

[ Select ]
Treasury bills
long-term government debt
:

Question

When the Fed uses quantitative easing, it is 
[ Select ]
selling
buying
 
[ Select ]
Treasury bills
long-term government debt
 :

BlackTom AI · Accepted Answer

In this question, we need to decide what the Fed does during quantitative easing and what kind of securities it prefers.
Option 1 (first dropdown): Compare selling versus buying. When the Fed engages in quantitative easing, it expands the monetary base by purchasing assets from the public or financial institutions, not by selling assets. Therefore, the action described aligns with buying rather than selling.
Option 2 (second dropdown): Compare Treasury bills versus long-term government debt. QE targets longer-duration assets to reduce longer-term interest rates and to signal commitment to easing conditions. Historically, QE programs have focused on long-term government debt (like longer-dated Treasuries) rather than short-term instruments like Treasury bills, because the goal is to influence long-term yields and liquidity in deeper funding markets.
Putting these together, the QE activity described is buying long-term government debt. This combination reflects the standard mechanism of QE: asset purchases to inject liquidity and compress long-term rates.
Why the other word choices are off: If we had chosen selling, that would imply the Fed is withdrawing liquidity, which contradicts the objective of QE to ease credit conditions. If we had chosen Treasury bills, that would misstate the asset class targeted; bills are short-term instruments and are less effective at lowering long-term yields, which is the primary aim of QE. Thus, the pairing of buying with long-term government debt best matches the intended policy action during quantitative easing.
Overall, the described action is that the Fed is buying long-term government debt as part of quantitative easing, not selling and not targeting Treasury bills.

ECON 201 Sections 2 & 3, Winter 2025 14 Case Study Monetary Policy

When the Fed uses quantitative easing, it is [ Select ] selling buying [ Select ] Treasury bills long-term government debt :

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