Answer the following questions based on the press release from the Fed (Release Date: September 21, 2011) . You may want to find the original press release for the details .

"To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. "

a. The report claims that the proposed actions will put downward pressure on longer-term rates. Explain the mechanism through which these actions affect the long term interest rates. Also explain what effect will these actions have on the shorter term rates?

b. Plot the yield curve based on the data on 09/15/2011 (use the actual data - Treasury website ).

c. Show the EXPECTED change in the yield curve if the Fed pursues the proposed action. Please re-draw the graph in section b and show the expected change in the yield curve on the same graph.

d. Plot the yield curve based on the data on 10/31/2011 (use the actual data - Treasury website).

e. Compare the graphs in sections b and d. Has the yield curve shifted as expected? You may want to draw the graphs b and d in the same graph. This way you will be able to observe the patterns more accurately. Please explain your answer.