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2. The velocity of money Here, you will check your conclusion om the above question using real-world data. Specically, we will look at the US
2. The velocity of money Here, you will check your conclusion om the above question using real-world data. Specically, we will look at the US data which can be downloaded from the FRED (ht_tps://'ed.stlouisfed.org[l, which is maintained by the FRB of the St. Louis. (a) Download annual data on nominal GDP and money stock M1 in the US from 1959 to 2020. For the nominal GDP, you can use the following link (Ms://fred.stlouisfedorgfseries/GDPAL For the money stock, use this link (l_1t_tps:llfred.stlouisfedorgfseries/MlSL). Make sure that the data are at the annual 'equency before you download. You can click 'EDIT GRAPH' and modify the 'equency to 'Annual' by taking an 'Average' of the monthly data for each year. Create a chart showing both GDP and M1 on the same graph. Add legend, specify the name of variables, and clarify the unit of measurement. (b) Calculate the velocity of M1 money stock in the US from 1959 to 2020. Draw a gure showing the evolution of this variable from 1959 to 2020. Add the title \"Velocity of M1 Money Stock in the US (1959-2020).\" (0) Do you nd the historical pattern in the velocity before 2008 is consistent with your prediction in 1(g)? (The reason why the velocity starts to decrease since 2008 (and particularly in 2020) is because the Fed began to increase money supply dramatically as a form of the unconventional monetary policy. Interested students may want to read Section 23.4, although this section is beyond the coverage of this course.) 4. Policy mixes Suppose that our economy is now in a recession. To help the distressed people who suffer from the deep recession, the government decides to distribute a substantial amount of cash to citizens. Also, the central bank wants to stabilize the interest rate at the current level. So, it will not let i change in response to a new scal policy by conducting appropriate monetary policies. (a) Draw the IS-LM diagram and illustrate the effects of this new fiscal policy on output and interest rate. (b) Determine whether consumption, investment, and private saving increase, decrease, or do not change in the short run
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