What is the meaning of "quantitative easing"?

Quantitative easing refers to a monetary policy tool used by central banks to stimulate the economy when traditional monetary policy, like lowering interest rates, becomes less effective, especially near the zero lower bound. Through quantitative easing, a central bank purchases financial assets, such as government bonds and mortgage-backed securities, from the market. This action injects liquidity directly into the financial system, encouraging banks to lend more, thus increasing the money supply and lowering interest rates. The goal is to spur economic growth, boost spending and investment, and ultimately help to achieve stable inflation and full employment.

The other choices do not accurately capture the essence of quantitative easing. Increasing taxes to reduce government debt does not relate to monetary policy, and the statement about the government spending without increasing revenue pertains more to fiscal policy rather than monetary measures like quantitative easing. Similarly, while controlling inflation and addressing trade deficits are important economic considerations, they do not describe the mechanics or intent behind quantitative easing. This policy specifically focuses on enhancing liquidity and stimulating economic activity rather than targeting trade balances or direct tax changes.