Quantitative Easing

Quantitative easing involves the purchase, normally by a central bank, of assets such as government or corporate bonds in order to increase the supply of money in an economy in an attempt to prevent deflation. The assets are paid for by the electronic creation of money which is then credited to the accounts of the companies from which they were bought. This extra money boosts spending and helps prices to rise. Central banks normally introduce quantitative easing after cuts in official interest rates close to zero have failed to cause prices to rise. The risk associated with quantitative easing is that inflation may result.