I’ve been hearing these terms but don’t really understand what they mean, when and why are they used by the government and how exactly they affect prices and general standard of living.
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The Fed controls interest rates and inflation normally though open market operations. This is just buying and selling of short-term Treasuries. When the Fed buys Treasuries, it’s injecting new money into the system into the banks that sold those Treasuries. Those banks now have more money to lend to others, reducing interest rates with an intent to increase inflation. When the Fed sells Treasuries, it absorbs money from the banks it sold Treasuries to and takes it out of circulation. The banks have less money to lend, interest rates goes up, with the intent to reduce inflation.
Quantitative easing is a more expanded version of the Fed’s open market operations. However, instead of only buying short-term Treasuries to influence interest rates and increase the money supply, the Fed buys long-term Treasuries, mortgage-backed securities, corporate bonds, and sometimes (in the case of Japan) equities.
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