5. The following chart shows how the financial markets reacted to the Fed's second round of quantitative easing (QE2) after the financial crisis of 2007-2008. (Source: WSJ). 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 AUG. SEPT OCT. 10 15 WED. 2.75% 2.654% 27702A 2.50 2.607% 2.25 10-year Treasury yield 1106278 11000 Dow Jones Industrial Average 10644.25 10:27 ""1076103 1079103 10500 10150.65 10000 U.S. Dollar Index 804 27 on 765 14 DJ-UBS Commodity Index AS133.64 L. 145.68 148.16 131.59 130 137.25 120 Sources: Ryan ALI WSJ Market Data Group: Thomson Reuters Photos Associated Press A) 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?) B) How did the stock markets, commodity markets & foreign exchange rate markets react to QE2, and why