5. The Great Recession (2008) and Monetary Policy

During the great recession (2008), Fed had a dramatic increase in money supply and reduced the Fed Fund Rate to 0 (the lowest it can get). It hasn't helped the recession much. The following is the time-series graph for monetary base (money supply, roughly). Answer the following questions based on this information.

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(1)Why a 0 (nominal) interest rate didn't help the economy during the 2008 great recession? Write down the relevant equation and explain it clearly. (5 points)

(2) The following is a statement from a major US newspaper during the great recession. Evaluate the statement. Be specific. Don't be shallow. I expect to see the discussions on both short run and long run, policy effectiveness and policy ineffectiveness. Make your assumptions clearly for the discussion.(5 points)

"This pedal-to-the-metal quantitative easing the Fed is doing is absolutely disastrous. Never in US history has the money supply increased this fast for this long. History is filled with examples of where this ends - post-war Germany for one. We need to end the monetary extravagance immediately."