In the wake of the European Union's new financial market strategy to implement Quantitative Easing, Nicky Kundnani explains the process of QE and how it might effect the economy.

2. The Central Bank
creates electronic
money to purchase
Government bonds,
equity, and
corporate bonds.

3. The Central Bank creates
electronic money to purchase
Government bonds, equity, and
corporate bonds. The increase in money
supply will lead to an
increase in the price of
assets and incremental
decrease in the interest
rates due to an increase
in demand for money.

4. Due to the
decreased
interest rates,
borrowing and
funding become
less expensive.

5. Businesses
prosper in hopes
to stimulate the
economy.

7. Once the economy
is restored, the
bonds are
destroyed and
money supply is
decreased.

8. Risks of Quantitative Easing
• The Central Bank might lose money
• Risk of Inflation
• Consumer confidence could diminish
• Difficult to gauge the correct amount of
Quantitative Easing needed to bolster an
economy