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Disadvantages Of Quantitative Easing

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Quantitative easing can be classed as a monetary policy that is used as an extension of the cash supply to buy assets. In other words, Quantitative easing assigns a utilization of monetary policy that is exercised in the smooth transitioning of the economy. Usually, the central banks provide a back up support to banking sector post any crisis, to ease pressure by pumping money into markets, which helps the banking sector to try and maintain the lending level. Central banks are normally responsible for keeping the inflation rates and bank rates under the target range as set by the governments, considering the economic conditions that would encourage the economy by an increase in spending. Quantitative easing usually involves a structure where …show more content…

The first and foremost aim of the Central Bank is to maintain the inflation level to the minimum. The Quantitative Easing policy is differing and very inflationary since it uses money for both lending and keeping as reserves. Nevertheless the economic policy on the other hand states that the effect of inflation will be good when Quantitative Easing is used, when the economy goes down as it will encourage the economy as a whole initially. But it will create problems in the longer run as the effects of such a simulation will be an extreme challenge to deal with when the economy gradually recovers. Secondly, quantitative easing can lead to a fall in the interest rates in the short term and an increase in the rate of inflation in the longer run, hence causing an instability in the financial system as well as an increase in the interest rates, therefore it is essential for the central banks to keep the interest rates …show more content…

The first and foremost aim of the Central Bank is to maintain the inflation level to the minimum. The Quantitative Easing policy is differing and very inflationary since it uses money for both lending and keeping as reserves. Nevertheless the economic policy on the other hand states that the effect of inflation will be good when Quantitative Easing is used, when the economy goes down as it will encourage the economy as a whole initially. But it will create problems in the longer run as the effects of such a simulation will be an extreme challenge to deal with when the economy gradually recovers. Secondly, quantitative easing can lead to a fall in the interest rates in the short term and an increase in the rate of inflation in the longer run, hence causing an instability in the financial system as well as an increase in the interest rates, therefore it is essential for the central banks to keep the interest rates

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