What is the purpose of quantitative easing?

Quantitative easing (QE) is a monetary policy tool used by central banks to stimulate the economy, particularly when standard monetary policy becomes ineffective, such as when interest rates are already very low. The primary purpose of QE is to increase the money supply, which, in turn, aims to lower long-term interest rates and encourage lending and investment.

By purchasing financial assets, such as government bonds, from financial institutions, the central bank injects liquidity into the economy. This increase in the money supply helps to lower borrowing costs for businesses and consumers, making it easier for them to finance investments and spending. The enhanced economic activity can lead to increased employment and higher consumer demand, which is particularly vital during periods of economic downturn.

While other options touch on different aspects of fiscal and monetary policy, only the correct answer directly relates to the purpose of increasing the money supply to stimulate economic growth.