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Figure 2.3 Growth Rates of Monetary Aggregates, 1960-2019. 25 20 15 Annual Growth Rate (%) -5 MI - M2 -10 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 SOURCE: Board of Governors of the Federal Reserve System, Release H.6. (FRED data codes: M1SL and M2SL).For a'etaii'eaf insn'nctions on nsinggr Federai Reserve Economic Data (FRED) online to answer each ofthefoiiowingprobiems, visit www.mhlle.comimoneyanllbankillge and refer to the FRED Resources and Data Exploration Hints. 1. Find the most recent level of M2 (FRED code: MZSL) and of the US. population (FRED code: POP). Compute the quantity of money divided by the population. {Note that M2 is measured in billions of dollars and population is in thousands of individuals.) Do you think your answer is large? Why? (L0!) Reproduce Figure 2.3 from 1960 to the present, showing the percent change from a year ago of M1 (FRED code: MISL) and M2 {FRED code: M2 SL). Comment on the pattern over the last ve years. Would it matter which of the two monetary aggregates you looked at? (L03) Which usually grows faster: M1 or M2? Produce a graph showing M2 divided by M1. When this ratio rises, M2 outpaces M1 and vice versa. What is the longrun pattern? Is the pattern stable? (L03) To complete payments, do you think people need more or less currency per dollar of transactions than they did 30 years ago? After stating your hypothesis, plot currency in circulation as a percent of GDP from 1990 (FRED Codes: CURRENCY and GDP). Was your intuition consistent with the data? What might account for the trend you observe? (L01) Plot the annual inflation rate based on the percent change from a year ago of the consumer price index (FRED code: CPLAUCSL). Comment on the average and variability of ination in the 1960s, the 19705, and the most recent decade. (L03)