CFA Level I · CFA Level I Exam · Monetary Policy
A central bank faces a policy rate already at zero and wants to ease conditions further by purchasing long-dated government and mortgage securities from the market in large quantities. This policy is best described as:
This is quantitative easing. The central bank buys long-dated securities in large amounts when the policy rate is at zero, expanding reserves and pushing down longer-term yields to stimulate the economy. The other options describe tightening actions.
- Aquantitative easingCorrect
- Ba contractionary open market sale
- Ca reserve requirement increase
Explanation
Large-scale purchases of long-term assets when the policy rate is near zero expand the central bank's balance sheet and reserves, lowering long-term yields. This is quantitative easing. Sales or higher reserve requirements would tighten policy.
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