Question

During lecture, we discussed Quantitative Easing, or the FEDs untraditional monetary policy in response to the housing crisis, and the historical implications of inverted yield curves. Which of the following statements is (are) FALSE: 1. US treasuries were downgraded by the credit rating agencies as a result of QE II. Increasing the money supply was the only action the FED took to stabilize the economy III. Since the yield curve inverted in December of 2018, the SP 500 has not reached new highs a. b. c. d. e. I III I, III II, III

Answer 1

The US treasuries were downgraded by the credit rating agencies for a slew of reasons including the government budget deficit running more than 11% of GDP and net government debt rising to 80% of more of GDP, governance and policy making ability, revenues etc and not just as a response to QE

FED took multiple steps during and after the financial crisis to stem the economy from going into recession. Some of these were quantitative easing, MBS program, TAF(Term Auction facility),Term securities lending facility etc.

In 2018, S&P 500 posted the worst performance since 2011 and December 2018 it fell by over 9% MOM, mainly due to yield curve reversion.

So answer is

b)  II