What is the main purpose of 'quantitative easing'?

• A. To decrease the money supply in the economy
• B. To collaborate with other countries on mutual investments
• C. To increase the money supply by buying securities
• D. To stabilize the currency exchange rates

Answer: (C)

Quantitative easing is a monetary policy tool used by central banks to stimulate the economy, particularly during periods of low economic growth or recession. The main purpose of this approach is to increase the money supply by buying securities, typically government bonds, from financial institutions. This action injects liquidity into the financial system, lowers interest rates, and encourages lending and investment.

By purchasing these securities, the central bank effectively increases the reserves of the banks involved, enabling them to lend more to businesses and consumers. This boost in the money supply is intended to promote economic activity, support job creation, and potentially combat deflation. Overall, the focus on increasing the money supply is central to the effectiveness of quantitative easing, making it a key strategy for fostering economic recovery.