Scenario-based on Seasonal Changes in the Demand for Money. What are your thoughts on the below scenario:-

Part of the reason for the formation of the Fed in 1913 was to stabilize seasonal changes in the demand for money. The government recognized that in some months, there was a large transaction demand for currency, and part of the initial goal of the Fed was to respond to this demand.

a. In an agricultural economy, the harvest months experienced very high transactions. If the money supply is not adjusted, what effect would you expect this increase in transactions to have on monetary velocity?

b. If the government was trying to reduce the effect on velocity described in part (a), how should the Fed change money supply during the harvest months?

c. Below table, gives the monthly level of currency (US dollars), and the monthly level of retail sales in the US for the year 2000. What seasonal pattern do you observe in Retail Sales (what are the most significant seasonal movements in retail sales)?

d. What seasonal pattern do you see in the level of currency? How well does it match the pattern in retail sales? To quantify this answer, calculate the correlation between the two series.

e. Would you interpret your answer to (d) as evidence that increases in the money supply are affecting sales and output? What do you think the Fed is trying to do?

Month, 2000 Level of Retail Sales, currency, $millions $billions January 522.925 229871 February 516.507 244951 March 515.911 273112 April 517.362 260159 May 518.684 279257 June 520.971 276261 July 523.156 267893 August 522.496 279472 September 523.365 264793 October 525.014 266159 November 528.321 272790 December 535.366 317333