FMP
Jun 6, 2024 7:03 AM - Parth Sanghvi
Economic policy tools are essential for managing and stabilizing economies during periods of financial distress or economic downturns. Two prominent tools are Quantitative Easing (QE) and fiscal stimulus. Each has distinct mechanisms and impacts on the economy. Understanding these differences can help investors, policymakers, and citizens comprehend their roles and effects.
Quantitative Easing (QE) is a monetary policy tool used by central banks to inject liquidity into the economy. This is achieved by purchasing long-term securities, such as government bonds and mortgage-backed securities, from the open market. The primary goal of QE is to lower interest rates, increase money supply, and stimulate economic activity.
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Fiscal stimulus involves government spending and tax policies aimed at boosting economic activity. This can include direct government spending on infrastructure projects, tax cuts, unemployment benefits, and other public services. The objective of fiscal stimulus is to increase aggregate demand, create jobs, and support economic growth.
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QE:
Fiscal Stimulus:
Quantitative Easing and fiscal stimulus are powerful tools for managing economic challenges. While QE focuses on financial markets and liquidity, fiscal stimulus directly targets economic activity through spending and tax policies. Understanding their differences and applications can help in assessing economic policy decisions and their potential impacts.
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