Answer only ONE of the following two essay questions (a or b). Give reasons to supports your answer in detail but do not exceed 450 words.
a. Since the beginning of the financial crisis in 2007, the amount of Fed's assets has increased from $800 billion to over $4 trillion now. The increase has been as a result of three rounds of Quantitative Easing (QE) by the Fed, which has in turn increased the momentary base. Give reason why the QEs have not increased the rate of inflation as the Quantity Theory of Money suggest and why their impact on the GNP have been rather insignificant? Does this violate the Quantity Theory of Money? What is the QE impact on the velocity of money and the monetary multiplier?
b. Why financial crises in the past have caused the stock market crash? Briefly explain what caused the 2008 global financial meltdown. What are the similarities of the 2008 crisis with the crisis during the Great Depression? Do you think the US economy is still suffering from lingering effect of the crisis? Can the US fiscal imbalances lead to a new financial crisis?