Quantitative Easing and Policy Interaction

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Which of the following is a feature of quantitative easing?

The central bank raises interest rates

The central bank increases inflation expectations

The central bank purchases government or private securities (correct)

The central bank reduces expenditures

What is the ultimate aim of quantitative easing?

To increase cash balances

To reduce interest rates

To fund the budget deficit

To stimulate private sector demand (correct)

What is the concern of many economists regarding the central bank purchasing government securities on a large scale?

It reduces cash balances

It raises inflation expectations

It increases interest rates

It monetizes the government deficit (correct)

What does the IMF model suggest happens when governments run persistently high budget deficits?

Each country's productive potential reduces Signup and view all the answers

What effect does a lack of commitment to fiscal discipline have on inflation expectations and long-term interest rates?

They rise Signup and view all the answers

What is the relationship between fiscal stimulus and demand in the scenario of zero interest rates and deflation?

Fiscal stimulus raises demand and inflation Signup and view all the answers

What is the role of quantitative easing in major economies following the 2008-2009 Global Financial Crisis?

To substitute central bank balances for government securities Signup and view all the answers

What is the fear of many economists regarding the so-called printing of money?

It monetizes the government deficit Signup and view all the answers

What does the IMF model imply about the relationship between budget deficits and real interest rates?

Budget deficits increase real interest rates Signup and view all the answers

What is the conventional inflation target of central banks, such as the Bank of England?

To reduce inflation Signup and view all the answers

Which of the following is true about fiscal policy?

It involves government decisions about taxation and spending Signup and view all the answers

What is the difference between government revenues and expenditures over a period of time called?

Government deficits Signup and view all the answers

Which of the following is NOT a fiscal tool available to a government?

Monetary policy Signup and view all the answers

What does the structural budget deficit indicate about a government's fiscal stance?

Its fiscal policy Signup and view all the answers

If the ratio of government debt to GDP rose by 10 percentage points permanently, what would happen to world real interest rates?

They would rise by 0.14 percent Signup and view all the answers

What does monetary policy refer to?

Central bank activities Signup and view all the answers

How does fiscal policy affect the overall level of aggregate demand?

By increasing government spending Signup and view all the answers

What is the term for the ratio of government debt to GDP?

Structural budget deficit Signup and view all the answers

What would be the impact on world GDP if world real interest rates rise by 0.14 percent?

It would fall by 0.6 percent Signup and view all the answers

What does the term 'fiscal stance' refer to?

Government decisions about taxation and spending Signup and view all the answers