The Federal Reserve engages in another round of quantitative easing. What are the effects of this policy on the economy?(1 point)

Question

Responses

The rate of inflation decreases as the money supply decreases, which slows economic growth and increases unemployment.
The rate of inflation decreases as the money supply decreases, which slows economic growth and increases unemployment.

Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.
Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.

The rate of inflation decreases as the money supply increases, which causes an increase in consumer spending, employment, and economic growth.
The rate of inflation decreases as the money supply increases, which causes an increase in consumer spending, employment, and economic growth.

Banks do not have as much funds to issue loans to consumers and businesses, which decreases consumer and business spending, and slows economic growth.

Answer 1

The most accurate response regarding the effects of quantitative easing (QE) by the Federal Reserve is:

Banks have more funds to issue loans to consumers and businesses, which increases consumer and business spending, employment, and economic growth.

In a quantitative easing scenario, the Federal Reserve increases the money supply by purchasing government securities or other financial assets, which provides banks with more reserves. This typically leads to lower interest rates, making credit cheaper and more accessible for consumers and businesses, ultimately stimulating spending and investment in the economy, which can drive economic growth and potentially increase employment. However, it is worth noting that prolonged quantitative easing may also lead to inflationary pressures over time.