Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is quantitative easing (QE)?

1. A method for increasing tax revenues

2. A policy for improving fiscal discipline

3. A strategy of printing more money to stimulate the economy

4. An approach to controlling unemployment

The correct answer is: A strategy of printing more money to stimulate the economy

Quantitative easing (QE) is a monetary policy strategy implemented by central banks to stimulate the economy, particularly during periods of low economic growth and inflation. The correct choice highlights that QE involves the central bank creating new money to purchase financial assets, such as government bonds and mortgage-backed securities, which increases the money supply in the economy. This increase in money supply aims to lower interest rates, making borrowing cheaper, thereby encouraging businesses and consumers to spend and invest. As a result, QE seeks to stimulate economic activity and support financial market stability. By injecting liquidity into the financial system, QE attempts to foster lending and investment, ultimately leading to economic growth. In contrast, the other options do not accurately capture the essence of QE. Increasing tax revenues or improving fiscal discipline pertains more to fiscal policy rather than the monetary measures that define quantitative easing. Similarly, while controlling unemployment is a goal of economic policy, QE specifically addresses money supply and interest rates, rather than directly managing unemployment figures.