Bank of Canada used Quantitative Easing (QE) policy as a response to pandemic (QE is massive central bank open market purchases of government and private bonds.) 1. How does QE policy changes money supply? Explain the mechanism. 2. Does QE necessarily lead to higher inflation? Note the difference between changes in price level and changes in inflation. 3. Under what conditions will QE lead to higher inflation? Hint: see Central Bank Stimulus and Economic Analysis in Chapter 8.
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This increases the demand for these bonds, which in turn drives up their prices and lowers their yields. Show more…
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