Discuss the Effects of the Quantitative Easing Measures Implemented by the Fed of the United States on Other Economies Essay

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Answer: Discussion of how the QE impacted on other economies: QE impacted on emerging economies (EM), let’s say South-east Asian countries, both positively and negatively. When QE1 was launched, it laid positive impacts on emerging market. However, the continuity of bailout measure, QE2 stimulated macro-economic heating which added volatility for EM. First, the capital inflow from US to EM resulted from the decrease of short-term and long-term interest rates with increasing money supply under program of QE. The cost of borrowing in the US thus lowered and further channeled the borrowed capital to EM for investment for greater return. This increased “investment”, “asset price” and good spillover effects were shown in improvement on “employment” and “consumption”(good labor condition increased expected income and increase of asset price increased wealth ). Second, the QE provided low interest rate business environment which encouraged domestic economy to grow steadily and healthily. The higher accessibility of credits encouraged investment overseas. This ensured steadily economic growth of EM with inflow of foreign direct investment and growth of EM’s export markets as global consumption capacity could be improved in expanding economy of the US. Third, less turbulence of US’s economy under QE could ensure no large scale outflow of capital which would hit EM’s economy hard without FDI from EM. Negative spillover effect would result. Forth, the increase in private consumption, investment and improvement in labor market increased tax revenue collected by government. With higher government income, government would be more able to regulate economy to sustain in the future. Also, the fiscal deficit problem can be relieved with more revenue. However, problem of overheating resulted when more QE programs lunched following QE1. First, the exchange rate and export trade

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