ECB Reflects on Delayed Response to 2021–2022 Inflation

Answer the following questions to check your understanding of the story.

1) What is quantitative easing?

Quantitative easing is ____________.

a) large open market purchases of securities by the central bank that decrease bank reserves

b) large open market sales of securities by the central bank that increase bank reserves

c) large open market sales of securities by the central bank that decrease bank reserves

d) large open market purchases of securities by the central bank that increase bank reserves

2) What policy action could the ECB have taken to slow the surge in inflation in 2021-2022?

To slow the surge in inflation in 2021–2022, the ECB could have _______________.

a) lowered the policy interest rate

b) increased excess reserves

c) raised the policy interest rate

d) lowered the required reserve ratio

3) What would have been the effect of the ECB’s policy action in question 2?

a) A slowdown in aggregate supply.

b) A slowdown in aggregate demand.

c) An increase in the quantity of money.

d) An increase in aggregate demand.

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