Economics Essay

726 words - 3 pages

It is a well-known concept that changes in monetary policy have a substantial effect on economic growth. The Federal Reserve Bank holds the power to enact these types of policies and in 2008 they chose to implement quantitative easing. According to the Investopedia financial dictionary, quantitative easing is a policy that targets the lowering of current interest rates. Securities are purchased by the Federal Reserve Bank which in turn allows more money to circulate through the banking system (Investopedia online financial dictionary, n.d.). Positive effects seemed to stem from this initial implementation leading the Federal Reserve Bank to put this policy back into action in the fourth quarter of 2010. This decision was made after the country came face to face with the beginnings of another economic downfall. Purchasing securities to lower interest rates may sound like a suitable answer to the rising economic crisis but a look back at statistical evidence will show that there is a lack of positive sustainable results from quantitative easing.
An article in the Economist reveals that the Federal Reserve Bank’s main goal in implementing quantitative easing is to target investment by increasing the amount of money available to banks for lending (The Economist, 2014, para. 3). This increase in lending may seem great on the surface but if it pushes too much money into the system it can actually negatively affect inflation. Examining the values presented in the US Inflation Calculator shows that after quantitative easing was implemented in the fourth quarter of 2010 the inflation rate steadily increased. In January of 2011 inflation was listed at 1.6 increasing over the next nine months up to 3.9 (US Inflation Calculator, n.d., figure 3). This quick increase in inflation then has the potential to translate over into a decreased value of the U.S. dollar. When an employee's hard earned dollars are diminishing in value this is rarely seen as economic improvement.
Lisa Smith, in the article Quantitative Easing: Whats in a Name?, makes the argument that quantitative easing, if nothing else, shows Federal Reserve Bank is taking the reins in an attempt to jump start the economy; claiming that this assertiveness,...

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