AppliedMultiple choice
What is the main channel through which quantitative easing lowers long-term interest rates?
- AIt raises the short-term policy rate, which pulls long rates down as markets price in lower growth
- BIt lets the government borrow directly from the central bank at zero cost
- CBuying long bonds removes duration from the market and cuts the term premium
- DIt lowers inflation expectations, which mechanically lowers every nominal yield
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