(a) Monetary Policy Tools. Explain the Federal Reserve's use of it's main conventional monetary policy tool and discuss whether unconditional monetary policy is effective in responding to the global pandemic?

(b) Merton Model and Sovereign Credit Risk. Discuss to what extent the original Merton model framework can be applied to sovereign debt.

(c) Game Stop Short Squeeze and Endogenous Risk. In January 2021, a short squeeze of the stock of the American video game retailer GameStop caused its stock price to reach a premarket value of over $500 per share on 28 January, nearly 30 times the $17.25 valuation at the beginning of the month. Figure 1 shows the evolution of the stock price from January to February 2021. Approximately 140 percent of GameStop's public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit, although a number of hedge funds also participated. The short squeeze caused major financial consequences for certain hedge funds and large losses for short sellers.