Basic Points

• Quantitative easing is when a central bank deploys monetary policy to stimulate economic growth by increasing the amount of assets on their balance sheet, which is usually treasury bills, notes, and bonds; these increase respectively in their times to maturity. 
• The effect of QE (central banks buying fixed-income products) is that the yields on these products go down. This incentivizes investors to rotate out of fixed-income products and into equities (stocks). This helps the stock market go up easier. 
• And since QE generally lowers yields from treasury products like bonds, it eases the access to cheaper credit. This in turn is able to stimulate economic growth since businesses can grow easier with cheaper access to capital, but theoretically at the cost of increased inflation. 

Intermediate: Some Details on Fixed-Income Products

Treasury bills would generally be offered at a discount compared to their maturity date, but with no interest.

 As a slightly different dynamic, notes and bonds tend to have semi-annual interest payments, and bonds can have terms longer than 10 years. In cases of strong QE, sometimes mortgage-backed securities and blends of corporate bonds are bought as well. 

QE is the opposite of QT (quantitative tightening). A central bank would want to start a QE campaign and buy extra bills, notes, and bonds if their interest rates are already near zero and they want to stimulate the economy. Buying government debt like this increases the value of those fixed-income instruments, however it decreases their yield. This is because bonds that were available at a lower yield now are worth more, which forces the price to increase for the bond that has a higher yield). And when yields go down, investors rotate money into the equity market because equity risk becomes more attractive compared to lower yields. 

One stimulus benefit of QE to the economy is that it provides cheaper access to borrowed capital, which can accelerate business development. It also makes borrowing margin more attractive since the rates are lower, which encourages investors to use more leverage—perhaps also with the idea to hedge some of that leverage out with portfolio insurance like option collars. However, the main cost of QE is that it can easily increase inflation, although at times that can be desirable if it is too low, such as below 2%. QE can raise inflation because everyone having cheaper access to credit effectively amplifies their buying power, and therefore how much collective buying power is flowing through the economic system.