Quantitative easing (QE) and traditional open-market purchase differ in that
A) the goal of an open-market purchase was to raise the federal funds rate, while QE intends to reduce it.
B) open-market purchases raises the reserves in the banking system, while QE does not affect the amount of reserves.
C) an open-market purchase was intended to reduce the federal funds rate, while QE is not intended to do so.
D) open-market purchases increase the reserves in the banking system, while QE reduces the amount of reserves.

Question

Quizplus · Accepted Answer

An open-market purchase is traditionally used to reduce the federal funds rate by increasing the reserves in the banking system, making loans cheaper. Quantitative easing (QE) also aims to inject money into the economy but is used in situations where traditional methods like adjusting the federal funds rate are no longer effective, typically because rates are already near zero. Both increase reserves but have different contexts and scales of application.

Quantitative Easing (QE) and Traditional Open-Market Purchase Differ in That