Modern Monetary Theory (MMT) characterises the interaction between the government sector (treasury and central bank) and the non-government sector in terms of vertical transactions, which change the net financial asset position of the non-government sector. These are in contrast with transactions within the non-government sector, which net to zero in terms of the impact on the financial asset position. Both quantitative easing (a central bank operation) and net public spending (a treasury operation) fit this depiction of vertical transactions.
Answer: False
The answer is False.
Quantitative easing involves the central bank buying assets from the private sector - government bonds and high quality corporate debt. So what the central bank is doing is swapping financial assets with the banks - they sell their financial assets and receive back in return extra reserves.
So the central bank is buying one type of financial asset (private holdings of bonds, company paper) and exchanging it for another (reserve balances at the central bank).
The net financial assets in the private sector are in fact unchanged although the portfolio composition of those assets is altered (maturity substitution) which changes yields and returns.
In terms of changing portfolio compositions, quantitative easing increases central bank demand for "long maturity" assets held in the private sector which reduces interest rates at the longer end of the yield curve. These are traditionally thought of as the investment rates. This might increase aggregate demand given the cost of investment funds is likely to drop.
But on the other hand, the lower rates reduce the interest-income of savers who will reduce consumption (demand) accordingly.
How these opposing effects balance out is unclear but the evidence suggests there is not very much impact at all.
Fiscal policy adds net financial assets to the non-government sector by way of contradistinction to quantitative easing.
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