4. In Section 15.4, we discuss the potential relationship between government deficits and inflation. In this question, you will investigate the data on govern ment debt as a share of GDP and the monetary base as a share of GDP. First, find data on the amount of U.S. Federal government debt held by the public as a share of GDP. Then find data on the monetary base and divide it by GDP, noting that the monetary base is available at a monthly frequency and GDP is avail able at a quarterly frequency, so you will need to cre ate a quarterly series for the monetary base. One way to create such a quarterly series is to compute quar terly averages of the monthly monetary base series.

(FRED does this automatically.) Plot the debt-to-GDP data and the monetary base-to-GDP data on the same graph. Does there appear to be a relationship between the two variables? How did the relationship change in the Great Recession of 2007–2009? Can you explain this change, given what you learned about the finan cial crisis in Chapter 14?