Quantitative Easing (QE) - explained

What is quantitative easing? Central banks around the world may try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates. Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank's only option is to pump money into the economy directly. That is quantitative easing (QE). The way the central bank does this is by buying assets, usually government bonds using money it has simply created out of thin air. The institutions selling those bonds (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply. However, economists still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base. Reference: http://www.bbc.co.uk/news/business-15198789 Created at http://www.b2bwhiteboard.com