Assignment
The Power of the Fed: https://www.pbs.org/wgbh/frontline/film/the-power-of-the-fed/
Throughout this film, references and comparisons are made with the 2007-2008 mortgage
and financial crisis, which led to the Great Recession (Dec 2007 June 2009), and the
response of the Fed to prevent our economy from entering a Great Depression. More than
a decade later, the role of the Fed is still at the center of this film, while we experience
our economys recovery1, with inflationary pressures building up, and unemployment
rates across the nation declining.
To earn full points, you must watch the entire film, and answer at least a total of 7
questions, as explained below.
Part I: Answer at least 2 of the 5 questions below (8 points):
-1- What is your understanding of the QE from watching this film?
-2- What were the objectives of the Fed in dealing with the mortgage crisis leading to
foreclosures and job losses across the nation? You are encouraged to use additional
reliable sources of information besides the film.
-3- How successful was QE1 considered to be during the Great Recession in 2008-2009?
How about the subsequent QEs after 2009? You are encouraged to use additional reliable
sources of information besides the film.
-4- How did the Feds actions impact income inequality: Did they equally help the big
financial corporations (the Wall Street) AND the average American in terms of creating
jobs and increasing wages?
-5- Why was Professor Joseph Stiglitz concerned about the trickle-down economics
effects of the QE? (min 15)
1 Recovery from the pandemic induced recession, which started in Feb 2020.
2
Part II: Answer at least 3 of the 9 questions below (9 points):
-1- What were some of the concerns from the interviews in the film regarding to buy-
back stocks (corporate buy-back), and overall, the Fed incentivizing bad behavior on the
Wall Street, despite its good intentions?
-2- Why were the above actions not helping the real economy, not creating real wealth
and opportunities, jobs and improving labor market conditions? (This question is related
to the topic of nominal vs. real values in Economics, discussed in Module 5:
https://fscj.instructuremedia.com/embed/eded0731-1224-43a9-a05e-b979a8bc227b)
-3- Why can low interest rates be distorted tools in financial markets? Recall that in one
of the interviews in the film, it was mentioned that the financial sector/industry was
growing at 8% while the economy only at 3% at best.
-4- What was the Feds response to the pandemic, starting in March 2020? The press
release from this link is related to this question:
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm
-5- What happened to the federal funds rate? (min 35.41) What did the Fed announce in
regard to corporate debt?
-6- What was your understanding of the problem of moral hazard as discussed in the film
(min 39.31)?
-7- Why do some people think that the Fed is undercutting the way the free market is
supposed to work? Why/how has risk-taking been rewarded?
-8- In the video it was expressed that our economy has a financial system that is risky and
vulnerable. What were the views and positions expressed on this topic by current and
former Fed officials, economists and titans of finance? You are encouraged to use
additional reliable sources of information besides the film.
-9- What responsibilities can be attributed to the Fed, and what to other factors? (min
42:44) After all, to what extent can the Fed control financial markets?
Note: The Feds goals and responsibilities are more directly addressed in Module 7 (see
this short Module 7 lecture recording: Goals, Functions and Services of the Fed:
https://fscj.instructuremedia.com/embed/ffd63660-0e0b-41ad-a3e2-00d53ed56280
You are encouraged to use additional reliable sources of information besides the film.
3
Part III: Answer at least 2 of the 6 questions below (8 points):
-1- How are we, as citizens, affecting the economy with our behavior? Is the use of
stimulus checks to buy stocks, as shown in the film, helping the real economy (min
45:54)?
-2- A similar view expressed in the film is that with so much money injected in the
economy, people feel the need to buy: Things will only go up. Or else the Fed will step
in. If so, why wouldnt you just buy? (min 47.16). What is your reaction to that view?
-3- In one of the interviews in the film it was stated that: The Fed has been pumping up
asset prices in a way that is creating a bit of an illusion. This has resulted in financial
mania (for example, the value of a company grows 50% in 6 months).
Moreover, financial market analysts pointed out with concern that the housing market,
the stock market and the bond market are all overpriced at the same time, and moving up
simultaneously, which was described as playing with the fire. What are your thoughts
and reflections in this regard?
