Effects of quantitative easing on food prices Research Paper - 1

effectuate of quantitative easing on viands prices - Research Paper ExampleInstead of that regimen prices now depend on global demand and supply. Dependence on global mart leads to speculation which makes victuals price volatile. Volatility is a characteristic of the market place but irresponsible monitory policies gene put the market more volatile and drive prices up. Generally weather, speculation and a number of other faults would accept been considered as responsible but here monetary policy and quantitative easing (QE) or printing juvenile money are the main reasons. This policy washbasin be done by the central entrust only because everyone accepts this money as a payment. People use this money to buy government and embodied bonds, equity and houses. In addition central bank sometimes lowers the interest rate on spic-and-span bonds and loans and this will make additional pressure on money market. It encourages greater spending. On the other moot bank can also improve their position and show their interest in money bestow (Fry). Effects There is also a negative impact. Firstly, the printing of new money raises the purchasing forcefulness of the consumer and the demand of products increase. For that people demand more money but the central bank fails to supply that sum total of money. This leads to inflation in economy. Then to control the situation central bank decides to increase interest rate on both credit and deposit. For that central bank loss money on its purchase and indicate the government to impose higher tax rate on goods and services. Secondly, creating and spending money lowers the value of currentness and it causes inflation or hyper inflation. This exploits the purchasing power due to instable price level. Last of all, QE demolishes the confidence of an economy. Thus we can say that QE is counterproductive for an economy and central bank cannot impose QE anyhow (The Financial Times Lexicon). tally to some economist QE is not m ain responsible for rising of food prices. Poor people take a leak to understand that they should maintain their food habits basis on supply of those goods in world market. If there is seen a shortage of that good people should adjust their food habit according to the situation. This can make a stable situation in the food market which directly affects the prices of foods (Lagi et al). Gradual increase of basic food prices has severe impacts on enormous population across the world. There is a lack of confusion somewhat the factors which are responsible for this situation. The main cause of price increase of food is investor speculation. In recent age it is clearly seen that the supply and demand are not consistent with the actual price dynamics. The exploitation of food prices in 2007-08 and 2010-11 were mainly happened due to the investor speculation (Lagi et al). Along with that the usage of ethanol is another reason. The excessive consumption of ethanol in US gave a huge neg ative impact in the global market. It change magnitude the price of ethanol sharply. More over these adverse results are not only seen in the commodity market but also seen in the asset market. It increased the expected returns from equities and bonds. Though some economists have claimed speculators cannot affect the food market directly. According to them food prices are set up through the market mechanism and deregulation of the price system. Price system is generally controlled by the practitioners of the market. Therefore, there is a huge chance of making disingenuous price system. They generally set the price level with respect to their boodle maximization