QE

Question 1

How does QE work

Answer 1

Gov electronically adds money to balance sheet and buys bonds
Higher price of bonds leading to lower yield
Long term lower interest rates
Low interest rates and cash in banking system stimulates ad

Question 2

Evaluation of QE

Answer 2

Time lags
BOE hold 94%
QE benefits high income earners who invested in bonds. Leads to increased inequality

Question 3

Benefits of QE

Answer 3

Increases AD
Lower interest rates
Prevents unemployment
Drains toxic assets
Low risk
Inc availability of credit

Question 4

Drawbacks of QE

Answer 4

Bank even if more liquid may be reluctant to lend
QE increases share and property prices
Low interest rate leads to liquidity trap