quantitative easing

Question 1

why was q.e. adopted and why

Answer 1

-when traditional monetary policy approaches failed
-low availability of credit, low confidence, low willingness to lend

Question 2

how q.e. works

Answer 2

-central bank creates electronic money
-this is used to buy financial assets from institutions
-price of bonds rises, yield falls
-fianncial institutions loan or invest into riskier corp bonds
-p of cor bonds rises and yield falls, reducing cost of borrowing
-access to credit improves, general i.r. falls and willingness to lend rises
-stimulates borrowing, spending and investment