Study Notes
Monetary Policy - Quantitative Easing (QE)
- Level:
- AS, A-Level
- Board:
- AQA, Edexcel, OCR, IB
Last updated 22 Mar 2021
In March 2009 the Bank of England started a policy of quantitative easing (QE) for the first time
- When policy interest rates are at zero or close to zero, there is a limit to what conventional use of monetary policy can do
- The main aim of QE is to support aggregate demand and avoid a recession becoming a deflationary depression
- The Bank of England uses QE to increase the supply of money in the banking system.
- The Bank does not print new £10, £20 and £50 notes, it uses money created by the central bank to buy government bonds
- There are doubts about the effectiveness of quantitative easing – bank lending has struggled to recover since the end of the recession. At the end of 2014, the QE programme totalled £375 billion
Project Merlin (2011)
As part of Project Merlin, an agreement between the banking industry and the Government reached in 2011, banks had agreed to a 15 percent increase in lending to small and medium-sized businesses. Within a year it became clear that commercial banks were still reluctant to lend to businesses following the credit crunch.
Funding for Lending Scheme (FLS) (2012)
In July 2012, the Treasury and the BoE launched the Funding for Lending Scheme, which provides cheaper funding to lenders that increase their loan book to households and businesses.
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