Quantitative Easing 2 (QE2)

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Definition of 'Quantitative Easing 2 (QE2)'

Quantitative easing (QE) is a monetary policy whereby a central bank purchases government bonds or other financial assets to increase the money supply and stimulate the economy. The Federal Reserve (the Fed) first used QE in the United States in 2008 during the financial crisis. The Fed's goal was to lower interest rates and encourage banks to lend more money to businesses and consumers.

QE2 was the second round of quantitative easing by the Fed. It began in November 2010 and ended in June 2011. During QE2, the Fed purchased $600 billion in Treasury bonds and mortgage-backed securities. The goal of QE2 was to further lower interest rates and stimulate the economy.

There is some debate about the effectiveness of QE. Some economists believe that it was successful in helping to lower interest rates and stimulate the economy. Others believe that it was not effective and that it may have even caused some problems.

One potential problem with QE is that it can lead to inflation. When the Fed creates new money, it can cause the value of the dollar to decrease. This can make it more expensive for businesses and consumers to buy goods and services.

Another potential problem with QE is that it can lead to asset bubbles. When the Fed lowers interest rates, it makes it cheaper for investors to buy assets such as stocks and real estate. This can lead to a surge in prices for these assets, which can be dangerous if the bubble eventually bursts.

Overall, the effects of QE are complex and there is still much debate about its effectiveness. However, it is clear that QE is a powerful tool that can be used by central banks to influence the economy.

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