What is quantitative easing designed to achieve?

Quantitative easing is a monetary policy tool used by central banks to stimulate the economy when conventional monetary policy becomes less effective, particularly in a low-interest-rate environment. The primary objective of quantitative easing is to increase the money supply, which is intended to lower interest rates and encourage borrowing and investment. This process typically involves the central bank purchasing financial assets, such as government bonds, from banks and other financial institutions.

By injecting liquidity into the banking system, quantitative easing aims to promote lending, boost consumer spending, and foster economic growth. As more money circulates in the economy, businesses are more likely to invest in expansion, and consumers are more likely to increase spending, thereby stimulating economic activity.

The other options do not accurately reflect the goals of quantitative easing. For instance, reducing government spending is not a target of this policy; rather, it seeks to facilitate economic activity through increased liquidity. Stabilizing stock market prices can be a secondary effect but is not the primary purpose. Lastly, enhancing regulatory oversight of banks involves different mechanisms and is not directly linked to the objectives of quantitative easing. The focus remains on increasing the money supply and stimulating economic growth.