economics 3100 bank and money

economics 3100 bank and money Question 1. Transmission mechanism of QE Explain the transmission mechanism by which QE leads to higher spending in the economy. Question 2. Impact of QE on balance sheet Explain the link between QE and quantities of money. Draw Figure 3 on a separate sheet to supplement your explanation. Question 3. Two misconceptions about how QE works a) Explain why the extra reserves of commercial banks in the third row of Figure 3 are not ‘free money’ for banks. b) As you answered in Question 1 above, the transmission mechanism of QE aims to increase private spending directly, rather than aiming at increasing bank lending by providing more reserves to the banking system. Explain why the extra reserves of commercial banks in the third row of Figure 3 are not multiplied up into new loans and broad money (bank deposits plus cash)?