Can you explain quantitative easing?

Quantitative easing is a monetary policy instrument undertaken by the central bank. The aim of the policy is to increase money supply (liquidity) in the economy - encouraging spending and investment. 

This is how it works:

The central bank buys financial assets, such as government bonds, from anyone who holds them. This is most likely to be either firms or commercial banks. They exchange the bonds for liquid cash. By buying bonds, and giving cash, the central bank has increased the volume of cash on the balance sheets of commercial banks. This means banks can lend out more money (as banks have a ratio of how much money they can lend out, relative to how much liquid cash they have), which they do so by offering lower interest rates. This increases borrowing, spending and investment in the economy. Economic output is increased.