Question

Q2. a)   Explain and compare quantitative easing and credit easing. In your answer, explain the differences between these non-traditional monetary policy actions and traditional monetary policy.

b)   Why might an economy explore the use of quantitative easing rather than employing fiscal policy or traditional monetary policy.

Answer 1

A. Quantitative easing is done by Central Bank from buying of the Government Bonds in order to inject liquidity into the economy whereas credit easing will be leading to buying of the private and corporate bonds in order to increase liquidity in to the economy.

Quantitative easing is the last resort which is available to the central banks in order to stimulate the economy whereas credit easing id just tools of the central bank in order to stimulate the economy through in getting into various types of market instruments and process.

Hence, it can be said that quantitative easing will be only undertaken if the interest rates and other fails to stimulate the economy and credit easing will be used as a tool for infusion of liquidity

B) use of quantitative easing will be explored by the economy because it is more oriented towards buying of the Government Bonds from the market in order to infuse the Liquidity into the economy and it is done as a last resort in order to support the economy whereas use of fiscal policy or traditional monetary policy are not able to completely stimulate the economy in terms of heavy depression and when these tools which are indirectly intended for stimulation of the economy fails to work, then, the direct intervention by the central banks in form of buying out the government bond in order to increase the liquidity will be done through quantitative easing and hence it is a better method than and monetary policy and fiscal policy to stimulate economy.