If the Fed engages in quantitative easing,it has likely
A)decreased the federal funds rate to almost zero by buying large sums of securities.
B)increased the discount rate to prevent inflation.
C)decreased the discount rate by selling its own securities.
D)increased the federal funds rate by selling private securities.
E)started paying interest on required reserves.

Question

Quizplus · Accepted Answer

Quantitative easing involves the Fed buying large amounts of securities, which in turn increases the money supply and decreases the federal funds rate to almost zero. This is done in order to stimulate economic growth and fight off deflation. Choice B is incorrect because increasing the discount rate would slow down the economy and potentially prevent borrowing. Choice C is incorrect because decreasing the discount rate would incentivize borrowing and spending. Choice D is incorrect because selling private securities would not increase the federal funds rate. Choice E is incorrect because paying interest on required reserves is a separate policy tool from quantitative easing.

If the Fed Engages in Quantitative Easing,it Has Likely