Question

What is ``Quantitative Easing''?

• A. Reducing excise duty so as to promote higher demand.
• B. Restricting the number of units produced by a factory.
• C. Allowing companies to sell as much as possible.
• D. A way of influencing money supply by the central bank.

Hint:

Remember: Quantitative Easing = Central Bank buying bonds \(\Rightarrow\) more money in circulation \(\Rightarrow\) lower interest rates \(\Rightarrow\) boost economy.

Answer 1

The Correct Option is D

Step 1: Understanding the concept.
Quantitative Easing (QE) is a monetary policy tool used by central banks (such as the Reserve Bank of India, the Federal Reserve in the USA, or the European Central Bank) to inject liquidity into the economy.
Step 2: How it works.
In QE, the central bank purchases government bonds or other financial assets from the market. This increases the money supply and lowers interest rates, making borrowing cheaper and encouraging investment and consumption.
Step 3: Why it is used.
QE is generally used during periods of low growth or recession when traditional monetary policy (like lowering interest rates) is not sufficient to stimulate the economy. By increasing the money supply, the central bank tries to boost economic activity.
Step 4: Elimination of wrong options.
- (A) Reducing excise duty is a fiscal policy measure, not monetary policy.
- (B) Restricting production is unrelated to money supply.
- (C) Allowing companies to sell more is a market activity, not QE.
Thus, (D) is the correct answer.
\[ \boxed{\text{Quantitative Easing is a central bank tool to influence money supply.}} \]