Kevin's

ECO 120 GLOBAL MACROECONOMICS Fall 2008 G. KNOWLES

Homework #3: MONEY, PRICES, & THE FED (20 Points) Due Thursday, October 30

Name

1. Using the Quantity Equation (M x V = P x Y or %ΔM + %ΔV = %ΔP + %ΔY).

| | | |Nominal GDP |Velocity of |Velocity of |

|Date |M1 |M2 |(P x Y) |M1 |M2 |

|Mar. 2006 |1384.0 |6779.3 |12964.6 | | |

|June 2006 |1376.2 |6836.4 |13155.0 | | |

|Sep. 2006 |1364.1 |6906.7 |13266.9 | | |

|Dec. 2006 |1365.9 |7030.8 |13392.3 | | |

All figures in billions of dollars. Source: federalreserve.gov and bea.gov

A. Fill in the table above for the Velocity of M1 and M2.

B. When drawing inferences about the relationship between the growth of money and the growth of the price level (inflation), it is often assumed that velocity is constant (like the assumption for equation (10.5) on page 288) or that it is growing at a steady and predictable rate (like the assumption in Box 10.1 on page 289). What can you say about the two velocities above?

Velocity of M1: .

Velocity of M2: .

| | |%ΔM2 = | |Inflation = |Real GDP |%ΔGDP = |

|Date |M2 |ΔM2 / M2 |CPI |%ΔCPI |Y...