CONTEXT
In his 1968 presidential address to the American Economic Association, Milton Friedman provided a short history of monetary policy in the 20th century followed by a discussion of what he believed monetary policy can achieve and what it cannot achieve. Since the publication of this article in 1968 (and more importantly the abandonment of the gold standard in 1971), monetary policy has changed through two phases. In the 1970s, price inflation and high unemployment co-existed, only to be tamed by very high interest rates in the early 1980s. By the 1990s, the conduct of monetary policy became more steady - focusing on successful inflation control through manipulation of benchmark interest rates in the financial system. Despite these successes, this system (and the system of financial market oversight) failed to prevent the recent financial crisis.It appears that monetary policy went through a third post-gold-standard phase, from which it is only now starting to emerge. Throughout 2008 and 2009, US monetary policy responded to the financial crisis with capital injections for troubled financial institutions, guaranteed bank assets, reductions in the discount rate to an all time low ranging from 0-25 basis points and repeated rounds of quantitative easing. The Federal Reserve has only recently begun to raise interest rates and stabilize the expansion of the money supply through quantitative easing. Although there were fears of inflation, no unusual inflation pressures have appeared since 2008. Canadian monetary policy response was less aggressive, but still featured dramatic cuts to the target overnight rate and purchases of insured mortgages to improve financial system liquidity. After cuts to manage the effects of lower oil prices, Canada's overnight interest rates have recently been allowed to rise as the Canadian economy recovers. Canada's governments have run modest deficits to support aggregate demand. Low interest rates in Europe were maintained during the height of the recession, then raised and subsequently lowered to negative rates. European government budget deficits incurred as a response to the financial crisis spiraled into a sovereign debt crisis. This only ended with a large program of asset purchases by the European Central Bank which continue through 2017. Japan's economy has suffered for decades under slow growth and weak inflation. Over the past three years, the government of Japan has raised taxes to improve its fiscal balance, while the Bank of Japan lowered monetary policy interest to negative rates and engaging in large asset purchases each month.

ASSIGNMENT
Describe 3-4 key factors that led to the recent financial crisis. Based on Friedman's arguments about the relative strengths of monetary and fiscal policy, did the Canadian, US, Japan and EU policy-makers undertake the correct actions to stabilize the economic crisis. In the future, should monetary and fiscal policies be permanently changed to prevent further crisis or can these advanced economies return to the policies they used from 2000-2008? Explain why and how or explain why not.

EVALUATION
Your essay will be marked based on the following criteria:

Reasonable presentation of potential causes of financial crisis
Reasonable inference of Professor Friedman's position
Illustration of analysis using tools such as: bond demand and supply, liquidity preference framework, changes of interest rates through time, central bank/banking system balance sheets, demand and supply of banking reserves on the overnight market, demand and supply of foreign-denominated assets on the currency market [Not all these tools must be used, just those that are most relevant to your argument]
Explanation of unconventional monetary policy measures and their role in responding to the recent financial crisis
Clearly written, well organized and professionally presented

CONTEXT In his 1968 presidential address to the American Economic...