What is the primary purpose of quantitative easing (QE) as a monetary policy?

The correct choice reflects the primary purpose of quantitative easing (QE), which is to create new money in order to stimulate the economy. QE is a non-traditional monetary policy used by central banks to increase the money supply when standard monetary policy tools, like lowering interest rates, become less effective, especially during periods of economic downturn or low inflation.

By purchasing government and sometimes other types of securities, central banks inject liquidity into the financial system. This influx of cash aims to lower interest rates further, making borrowing cheaper for businesses and consumers. The intended outcome is to encourage spending and investment, thus boosting economic activity and helping to achieve economic goals like full employment and stable inflation.

The other answers address various aspects of economic policy; however, they don't align with the objective of QE. For example, limiting government spending is more aligned with fiscal policy rather than monetary actions like QE. Decreasing private-sector spending would be counterproductive to the goals of QE. Raising interest rates contradicts the very aim of QE, where the central bank seeks to lower rates to foster growth. Hence, creating new money to stimulate the economy accurately describes the essence of quantitative easing.