The global economic crisis affected the global economy adversely with various leading economies adopting various economic measures and tools to revive their economies. Quantitative easing has been seen as one of the measure adopted by the global leading economies in dealing with the financial crisis. Quantitative easing has been defined as a measure through which the government increases the money supply in the economy. This government implements these monetary policies through printing of new currency as a measure to stimulate the economy. Quantitative easing has been adopted in various economies such as America, UK and Japan among others with the primary objective of ensuring low cost of borrowing, as well as facilitating lending by banks.
The national debt is the total borrowing by the government from internal and external sources. The internal debts are the debts borrowed within the borders of a country while the external debts comprise of the debts borrowed from foreign sources. There is a relationship between government debts and quantitative easing as some economic propose that it has been used in writing off the public debts. For example, government has used the measure in financing long term fixed rate loans and increase short term borrowing. This reduces government spending since the interests on short term borrowings are less as compared to interest cost of long term borrowings.
Quantitative easing has various implications both in the short and long term. Quantitative easing has been associated with low rates of interests on borrowing increasing spending in the short term by the public hence acting as a stimulant to the economy. However, the additional supply of money can also bring about inflationary effects in the economy. It has also been associated with increased risk in the financial market.
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