Quantitative easing by the Fed refers to
A)the creation of bank reserves by engaging in large-scale open market operation at very low interest rates.
B)selling private securities issued by the Fed.
C)decreasing the money supply during a recession to prevent inflation.
D)lowering the federal funds rate while increasing the discount rate.
E)lowering the required reserve ratio to zero percent.

Question

Quizplus · Accepted Answer

Quantitative easing refers to the creation of bank reserves through the purchase of government bonds or other securities in large quantities, which increases the money supply and lowers interest rates. Option A describes this process. Option B is incorrect, as the Fed does not sell private securities. Option C is incorrect, as decreasing the money supply during a recession can worsen the economic situation. Option D is incorrect, as lowering the federal funds rate and increasing the discount rate are separate actions that affect the cost of borrowing for banks. Option E is incorrect, as reducing the required reserve ratio increases banks' ability to make loans, but it does not directly affect the money supply.

Quantitative Easing by the Fed Refers to