How do central banks "inject" more money into the economy?
The BBC says the Bank of England, after slashing interest rates, is taking another step -- injecting billions of pounds into the economy. What does that mean? Where does the money go? Obviously, it's not just thrown out the Bank of England's window, so who gets it, and how?
- 1 decade agoFavorite Answer
In order to inject money into the economy, the government buys 'bond's from banks. This gives the banks more money. The banks then lend this money out to people.
- 1 decade ago
The government can't just print money (well, they can...but the effect won't be pretty...like 1930's Germany and 1980's Argentina).
The money isn't "injected" into the economy, it's really "taken out of storage." The money supply of the economy is governed by the interest rate between banks and the Federal Reserve.
If the interest rate is high, banks would give the money back to the Fed, because it's too expensive to borrow. If the interest rate is low, the banks would borrow more, and then invest or loan it out to the public for a profit.
So if you're buying a house, the lower the interest rate, the more you can afford to spend, and the more the seller would get. The seller would then use that proceeds to buy other things, therefor more $ in circulation.Source(s): If you want in depth information, look up the Macroeconomic term "IS-LM Model"
- mildridLv 44 years ago
because of the fact, like something, while the provision will strengthen the unit fee is going down. If the correct economic corporation will strengthen the provision of money quicker than underlying economic strengthen, the linked fee of the forex ought to long term era fall. couple of minutes era, factors alongside with velocity would impact how the inflation of the money furnish gets transferred into wide-unfold fees.
- 1 decade ago
it is called printing money and loaning money to more businesses and individuals to stimulate the economy. In a nutshell. The US has the tendency to inject it towards stupid things like poor and lazy unemployed americans. Now they are injecting universal healthcare for these deadbeats. hooray for the UK and canada, i'm getting outta here.