Answer to Question #297281 in Macroeconomics for Mayhem

Question

quantitative easing effect on economic activity

Answer 1

Quantitative easing pushes interest rates down. This lowers the returns investors and savers can get on the safest investments such as money market accounts, certificates of deposit (CDs), Treasuries, and corporate bonds.

Investors are forced into relatively riskier investments to find stronger returns. Many of these investors weight their portfolios towards stocks, pushing up stock market prices.

Falling interest rates also influence the decisions made by public companies. Lower rates mean lower borrowing costs. Companies have an incentive to expand their businesses and often borrow money to do so.

Fundamental analysis holds that business expansion is a sign of a healthy operation and a positive outlook on future demand. That inspires investors to buy stock, which causes stock prices to rise.