Quantitative Easing

Topics: Monetary policy, Inflation, Money supply Pages: 22 (7632 words) Published: March 25, 2011
Table of Contents
• Stabilization policy

• Fiscal policy

• Open market operations

• Quantitative Easing

• Monetary policy

Quantitative Easing
• Definition

• Overview

• Risks

• Motivation of this research ( why did you choice this topic)

• Objectives of the research

• Feasibility ( time and sources, any limitations)

History of Quantitative Easing
Examples of the quantitative easing like (Japan and USA) Comparison of USA and Japan

This paper discusses policy tools used by government in stabilizing the economic environment of a country. Apart from the common stabilization, monetary and fiscal monetary, the paper introduces the concept of quantitative easing which is gaining popularity in management of modern economies. It defines, gives an overview as well as a comprehensive explanation of the mechanics involved in implementing the policy. In addition, it gives insight on the historical perspective is highlighted with special reference to The Japanese and US cases. The paper ends with a summary conclusion tying all the concerns and expectations of the policy.

Economic development among societies is the single most important goal pursued by people across the world. Every individual, community, society and nation strives to achieve higher levels of development in order to avail higher and better living standards to the masses. The three most important parties in this development process are households, the firms and the government. Better economic performance is their common goal. Households strive to achieve better living standards; firms strive to achieve better profits while the government supports the achievement of these two goals. This is in a capitalist economy. In a bid to achieve these goals, the need to develop policies to harness the strengths of each of these economic units emerges.

There are numerous policies targeting different aspects of the economy. In this paper, focus is on how governments apply policies in the management of the financial sector in order to achieve growth and development. The main policies of focus here include: the stabilization policy, fiscal policy, open market operations, quantitative easing and monetary policy. Special emphasis will be laid on quantitative easing where an in-depth analysis will be conducted on its effectiveness as well as its historical successes or failure in nations where it has been tried. Stabilization Policy

Before the 1930’s a majority of economists never thought that the government was in any position to offer viable solutions to problems facing the economy. Indeed they were very skeptical of any attempts by government or central banks to intervene as they believed that this would tamper with the self regulatory mechanisms in the market leading to irreparable instabilities. This long held view was upset by the great depression of the 1930’s. The sudden collapse of the US and consequently global economy showed signs indicating that the economy itself is inherently unstable. This inherent instability caused the collapse of the stock markets resulting in one of the most agonizing economic moments of history.

Classical economists came to appreciate the cyclical nature of economic growth. Just like in many other aspects of life, the economy is characterized by periods of depressions and accelerated growth or a boom. Periods of depression are characterized by deflationary pressures; slowed productivity hence increased unemployment rates. This is definitely a concern for the authorities as it leads to diminished standard of living among the people threatening social stability (Willem, 2010, par4).

In times of economic boom, the economy is characterized by high inflationary pressures, high productivity hence high employment rates. Despite the...
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