Question

4.) What is quantitative easing? Explain why quantitative easing is not likely to be effective during a

liquidity trap

Answer 1

Quantitative easing is a whimsical financial approach in which a national bank buys government securities or different securities from the market so as to bring down loan fees and increment the cash supply. Quantitative easing expands the cash supply by flooding money related foundations with capital with an end goal to advance expanded loaning and liquidity. At the point when transient loan fees are at or moving toward zero, and when the printing of new banknotes isn't an alternative, quantitative easing can be considered

Drawbacks
In the event that national banks increment the cash supply, it can cause swelling. In a most dire outcome imaginable, the national bank may cause swelling through QE without monetary development, causing a time of purported "stagflation." Although most national banks are made by their nations' legislature and are associated with some administrative oversight, national banks can't constrain the banks to build loaning or power borrowers to look for advances and contribute. On the off chance that the expanded cash supply does not work its way through the banks and into the economy, QE may not be successful.

One of the key segments of long haul development of financial yield is an economy's funds. In monetary terms, reserve funds meets venture. QE can stifle venture by swarming out financial specialists since they have little open door for a satisfactory return when capital expenses are low. The national bank can fill the hole by increasing the cash supply, yet QE can't be supported uncertainly. Meanwhile, speculators may go somewhere else for returns, which can sting long haul development in the economy.

Another possibly negative outcome is that quantitative easing can debase the residential cash. For producers, this may help invigorate development in light of the fact that traded merchandise would be less expensive in the worldwide market. Be that as it may, a falling money esteem makes imports increasingly costly, which can build the expense of generation and purchaser cost levels.