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The Quantitative Easing (QE) may be used by the Central Bank to stimulate the economy. Please elaborate on how they had achieve their goal. (Hint: How did the QE2 affect the money supply, the interest rate, and thus the economy?) How did the stock markets, commodity markets, and foreign exchange rate markets react to QE2 and why?

5. The following chart shows how the financial markets reacted to the Fed's second round of quantitative casing (QE2) after the financial crisis of 2007-2008. (Source: WSJ). QE2: The Fed's Next Big Step Hentenario the Federal Reserve choreographed speeches and policy statements ha sigut Wednesday's decision to purchase a further $600 bilion af longer-term Treasury securities by the end of the second quarter of 2011. a pace of about 575 billion per month Treasury bond yold felstock pic the dollar dropped and readily price d as the main anticipated the Fed controversial Fonds it will buy FOMC MEETING 225 10-yeur Treasury yield 133 Dow Jones Industrial Average 125 Us. Delle Index DHUR Commodity Index 318 1) The Quantitative Easing (QE) may be used by the Central Bank to stimulate the economy. Please elaborate on how they had achieved their goal. (Hint: how did the QE2 affect the money supply, the interest rate, and thus the economy?) (5 points) 2) How did the stock markets, commodity markets & foreign exchange rate markets react to QE2, and why? (5 points) Page 2 of 2 294 wards English (United States) Focus 3 - + 56% QE2: The Fed's Next Big Step Ben Bernanke and the Federal Reserve choreographed speeches and policy statements to signal Wednesday's decision to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. Treasury bond yields fell, stock prices rose, the dollar dropped and commodity prices soared as the market anticipated the Fed's controversial move. Fed says it will buy Treasury debt to replace maturing mortgage bonds. "Should further action prove necessary, policy options are available to provide additional stimulus.' BERNANKE SPEECH JACKSON HOLE, WYO. The Fed is prepared to provide additional accommodation if needed to support the economic recovery...' FOMC MEETING There would appear-all else being equal to be a case for further action.' To promote a stronger economic recovery and ensure inflation is consistent with its mandate, the Committee decided to expand its holdings of FOMC MEETING FOMC MEETING BERNANKE SPEECH, BOSTON AUG 10 AUG. SEPT OCT 21 WED. 2.75 26545 2779% 2.50 2607% .. 2.625% 2.25 10-year Treasury yield 11000 11062.78 Dow Jones Industrial Average 10644.25 1076103 10500 10150,65 10000 U.S. Dollar Index 85 30.4 80 808 DJ-UBS Commodity Index 145.68 133 64 13159 130 13725 120 Sources: Ryan ALM WSJ Market Data Group Thomson Reuters Photos Associated Press

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