Does quantitative easing cause inflation?

Quantitative easing (QE) is a monetary policy used by central banks to stimulate the economy by increasing the money supply. Some economists argue that QE can cause inflation because it increases the amount of money in circulation, which can lead to higher prices for goods and services. However, others argue that QE can actually help to prevent inflation by boosting economic growth and reducing unemployment. The method in Europe that was used for QE was to purchase bonds (Goverment loans, corporate loans or securitized consumer loans) directly on the market, in effect lowering the interest rate the borrowers had to give to investors. While this does expand the money supply, it does so at a marginal rate of 2-3% p.a. and you could argue that as long as the real inflation rate remained low that this mechanism only contributed positively to the economy.

The effects of inflation are often not directly felt but are played out over a long time, especially long-term investments are vulnerable to inflation.

 

At Horizon65, we created a mobile app that enabled you to check the effect of inflation on your savings.

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