: Quantitative Easing and Fed Tapering
In: Economics
i dont know if this is the answer you’re looking for but here goes- (this is for QE only)
the government ends up spending more than they earn so they go into debt. in order to come out of this debt the central bank issues treasury bills and bonds which people can purchase. these bills and bonds are issued to the comm banks. the comm banks buy these an sell them to the people. when the comm banks buy the bonds the money the comm bank has reduced because they spent it on the bonds. however, w QE, the government buys back these bonds that they issued to the comm banks which means that the comm banks now have the money they spent and not the bonds. this in turn increases the amount of money the comm banks have. as the comm banks have more money they can give out more so they reduce the price of credit(which is interest) to increase borrowing of money from the banks.
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