Economics/is that....

Advertisement


Question
hello, us print 1 trillion by quantitative easing and create growth by 1 trillion , is that the solution for us economy ? and is there limit for quantitative easing ? ( meaning fed can not buy more bonds)

Answer
Thanks for the question!

Be careful that you're not confusing economic growth with increased money supply.  Economic growth refers to increases in the total value of national production, while increased money supply means simply that the total amount of money available in the market has increased.  Besides just printing money, money supply can also be increased by changing bank reserve requirements (i.e.: by decreasing the percent of total deposits that banks must keep on reserve, the total amount of money that can be distributed as loans increases).  Another way for the federal reserve to increase money supply (the federal reserve is in charge of monetary policy in the U.S.) is by purchasing long-term debt from banks at a discount, thereby increasing the liquidity of banks by turning long-term investments into short-term cash.

The goal is for increased money supply to turn into economic growth, and that has happened with some degree of success, although limited.  So, monetary policy is limited in 2 primary ways: First, it is limited in that decreased interest rates and increased money supply does not translate 100% into economic growth; an increased money supply of 10% will not translate into 10% economic growth.  The second way in which expansionary monetary policy is limited is that it can also result in inflation if the federal reserve isn't careful.  So, the point at which the fed must stop increasing monetary expansion would be the point at which marginal inflationary risk and marginal liquidity risk for the federal reserve increase at a rate faster than anticipated marginal economic growth.

I hope that helps answer your question.

Economics

All Answers


Answers by Expert:


Ask Experts

Volunteer


Michael Taillard

Expertise

Accepts most economic questions

Experience

Consulting with major corporations, government agencies, political organizations, small businesses, non-profits, start-ups, and even individual people. Teaching at universities around the world, and developing original coursework. Performing original research and analysis. Writing books and scientific studies.

Organizations
American Economics Association

Publications
http://www.barnesandnoble.com/s/michael%20taillard You can also check Proquest for a small selection of my research.

Education/Credentials
PhD (Financial Economics; honors) -- MBA (International Business Finance; honors) -- Grad School Certificate (International Business Management; honors) -- BS (International Business Economics; honors) -- AA (Business Administration; honors) -- Certificate (Chinese Language and Culture) -- Trade School (Transportation Logistics; honors)

©2017 About.com. All rights reserved.