Quantitative Easing

Quantitative Easing (QE) is a monetary policy where central banks buy financial assets to boost the economy. It lowers interest rates, raises asset prices, and aids recovery. However, QE faces criticisms like inflating asset bubbles and doubts about its effectiveness. It’s a vital tool for central banks during economic crises.


  • Asset Purchases: QE involves central banks purchasing a variety of financial assets, including government bonds, mortgage-backed securities, and corporate bonds.
  • Unconventional Monetary Policy: QE is considered unconventional because it goes beyond adjusting short-term interest rates, which are the typical tools of central banks.
  • Open Market Operations: Central banks conduct QE through open market operations, effectively creating new money to buy assets from the private sector.


  • Money Creation: When central banks purchase assets, they credit the accounts of the selling institutions with new money, increasing the money supply.
  • Lower Interest Rates: By buying large quantities of assets, central banks reduce the supply of those assets in the market, causing their prices to rise and their yields (interest rates) to fall.
  • Stimulating Borrowing and Spending: Lower interest rates encourage borrowing by consumers and businesses, leading to increased spending, investment, and economic activity.


  • Asset Price Increases: QE often leads to rising prices of financial assets such as stocks and bonds due to increased demand.
  • Economic Stimulus: QE is used to stimulate economic growth, particularly during periods of recession or economic downturns.
  • Inflation Concerns: As QE increases the money supply, it can potentially lead to inflationary pressures in the economy.

Criticisms and Concerns:

  • Asset Bubbles: Critics argue that QE can inflate asset bubbles, causing overvaluation and instability in financial markets.
  • Income Inequality: Some believe that QE can exacerbate income inequality by benefiting asset owners while not necessarily benefiting those with lower incomes.
  • Effectiveness Debate: There is ongoing debate about the effectiveness of QE in achieving its intended economic goals, with varying opinions among economists and policymakers.

Use Cases:

  • Global Financial Crisis: QE was extensively used by central banks, including the U.S. Federal Reserve, to combat the 2008 financial crisis and subsequent economic recession.
  • COVID-19 Pandemic: Central banks implemented QE measures during the COVID-19 pandemic to stabilize financial markets and support economies hit by lockdowns and reduced economic activity.


  • U.S. Federal Reserve: The Fed conducted multiple rounds of QE, including QE1, QE2, and QE3, to address economic challenges in the United States.
  • European Central Bank (ECB): The ECB implemented QE programs to combat economic issues in the eurozone, including the sovereign debt crisis.
  • Bank of Japan: Japan has a long history of using QE as a tool to combat deflation and stimulate economic growth.
  • Bank of England: The UK’s central bank has also employed QE measures to address economic challenges.

Key highlights of Quantitative Easing (QE):

  • Unconventional Monetary Policy: QE is an unconventional tool used by central banks to stimulate economic growth and manage financial crises.
  • Asset Purchases: Central banks buy a variety of financial assets, injecting new money into the economy.
  • Lower Interest Rates: QE lowers interest rates, encouraging borrowing, spending, and investment.
  • Economic Stimulus: It is used to combat economic downturns, such as recessions or financial crises.
  • Asset Price Increases: QE can lead to rising prices of financial assets like stocks and bonds.
  • Inflation Concerns: Critics worry that QE may contribute to inflationary pressures.
  • Debate on Effectiveness: There is ongoing debate about how effective QE is in achieving its economic objectives.
  • Examples: QE was used during the 2008 financial crisis and the COVID-19 pandemic by central banks worldwide.

Connected Financial Concepts

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The circle of competence describes a person’s natural competence in an area that matches their skills and abilities. Beyond this imaginary circle are skills and abilities that a person is naturally less competent at. The concept was popularised by Warren Buffett, who argued that investors should only invest in companies they know and understand. However, the circle of competence applies to any topic and indeed any individual.

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Buffet Indicator

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Venture Capital

Venture capital is a form of investing skewed toward high-risk bets, that are likely to fail. Therefore venture capitalists look for higher returns. Indeed, venture capital is based on the power law, or the law for which a small number of bets will pay off big time for the larger numbers of low-return or investments that will go to zero. That is the whole premise of venture capital.

Foreign Direct Investment

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Meme Investing

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Retail Investing

Retail investing is the act of non-professional investors buying and selling securities for their own purposes. Retail investing has become popular with the rise of zero commissions digital platforms enabling anyone with small portfolio to trade.

Accredited Investor

Accredited investors are individuals or entities deemed sophisticated enough to purchase securities that are not bound by the laws that protect normal investors. These may encompass venture capital, angel investments, private equity funds, hedge funds, real estate investment funds, and specialty investment funds such as those related to cryptocurrency. Accredited investors, therefore, are individuals or entities permitted to invest in securities that are complex, opaque, loosely regulated, or otherwise unregistered with a financial authority.

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Startup valuation describes a suite of methods used to value companies with little or no revenue. Therefore, startup valuation is the process of determining what a startup is worth. This value clarifies the company’s capacity to meet customer and investor expectations, achieve stated milestones, and use the new capital to grow.

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Income Statement

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Capital Expenditure

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Financial Statements

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Financial Ratio



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Behavioral Finance

Behavioral finance or economics focuses on understanding how individuals make decisions and how those decisions are affected by psychological factors, such as biases, and how those can affect the collective. Behavioral finance is an expansion of classic finance and economics that assumed that people always rational choices based on optimizing their outcome, void of context.

Connected Video Lectures

Read Next: BiasesBounded RationalityMandela EffectDunning-Kruger

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