The Federal Reserve and other central banks see quantitative easing as a last resort when short-term interest rates are at or near zero. The purpose of quantitative easing is to inject liquidity into the markets and to boost aggregate demand. The most famous examples of quantitative easing took place in the United States, Great Britain and the European Union (EU) during 2009 and 2010 in response to the Great Recession.

To perform quantitative easing, central banks make large-scale purchases of financial assets from commercial banks or other private institutions. The central bank creates new money stock to make these purchases, increasing their balance sheets along the way. The hope is that the new money will be lent out to other private individuals and businesses to stimulate economic growth, reduce unemployment or prevent deflation.

Central bankers and economists attempted quantitative easing after traditional forms of expansionary monetary policy were proving ineffective. Traditional monetary policy includes reducing intra-bank interest rates and purchasing government bonds. However, these strategies have a reduced impact as rates approach zero.

The exact definition of quantitative easing isn't agreed upon. Many economic or financial publications refer to quantitative easing as an attempt to increase the money supply by buying securities from the government or the market. In this sense, quantitative easing falls into the same category as standard bond purchase programs. Former Fed chief Ben Bernanke broke down quantitative easing and differentiated it from both bond purchases and other types of credit easing plans by the Federal Reserve, stating that quantitative easing was not concerned with the composition of bonds and loans -- only the quantity.

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