Question 1

What is quantitative easing?

Accepted Answer

**Quantitative easing (QE)** is a central bank creating new money to buy financial assets — overwhelmingly government bonds — in order to stimulate the economy when conventional interest rate cuts have reached their limit.

**Why it exists.** A central bank's normal tool is the policy interest rate. When that rate is already near zero, it cannot be cut much further — the **zero lower bound**. QE is what central banks turned to after 2008 when they had run out of conventional room.

**How it works mechanically:**

**The central bank creates reserves** electronically — new central bank money, not printed notes.

**It buys bonds** in the secondary market, mainly from pension funds, insurers and banks.

**Bond prices rise and yields fall.** Because bond prices and yields move inversely, large-scale buying pushes yields down across the market.

**Lower yields feed through** to borrowing costs generally, and push investors toward riskier assets seeking return — the **portfolio rebalancing** effect.

**Sellers hold cash instead of bonds**, which they may spend or invest.

**Confidence and expectations** are also part of the intended mechanism.

**What it is not.** It is **not** the government printing money to fund spending directly, which would be **monetary financing** and is prohibited in most advanced economies. The central bank buys existing bonds in the market, and the purchases are assets on its balance sheet that can be sold or allowed to mature.

**The criticisms, which are substantial:**

**Asset price inflation.** Pushing up the price of bonds, shares and property benefits existing asset holders disproportionately, and QE has been widely criticised for **worsening wealth inequality**.

**Uncertain effectiveness** on the real economy, with the transmission to lending and investment weaker than hoped.

**Pension deficits** widened by lower yields.

**Difficulty unwinding.** **Quantitative tightening** — reversing it — has proved awkward, and central banks have taken losses on holdings bought at higher prices.

**Its relationship to inflation** remains contested among economists.

Question 2

What actually happens to your money when you deposit it in a bank?

Accepted Answer

It stops being your money in the physical sense and becomes a debt the bank owes you. Your balance is an entry in the bank's ledger recording what it must repay on demand — not a box of your notes

Question 3

Why do bond prices fall when interest rates rise?

Accepted Answer

Because a bond pays a fixed amount, so when newly issued bonds offer more, the only way an existing bond can compete is for its price to drop until the return a buyer gets matches what is available

Question 4

What is a bank run and why do they happen?

Accepted Answer

A bank run is a large number of depositors withdrawing money simultaneously because they fear the bank will fail — and the crucial feature is that the fear can cause the failure regardless of whether

Question 5

Why does inflation make saving harder?

Accepted Answer

Because the number in your account can grow while what it buys shrinks. Inflation is a rise in the general price level, so a fixed sum of money purchases less over time. The distinction that matters

Question 6

How to set up a high yield savings account?

Accepted Answer

Setting up a high yield savings account involves comparing banks, providing personal information, and understanding account terms. Automate deposits for better savings.

Question 7

What is a central bank digital currency?

Accepted Answer

A central bank digital currency (CBDC) is digital money issued by a central bank — a direct claim on the central bank in electronic form, rather than a claim on a commercial bank. The distinction

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