In theory, the velocity of money should rise with the cost of holding it. To assess the theory, plot the opportunity cost of holding M2 – defined as the difference between the three-month Treasury bill rate (FRED code: TB3MS) and the interest rate on M2 components (FRED code: M2OWN) and (on the right scale) the percent change from a year ago of M2 velocity (FRED code: M2V). What do you conclude?
Answer to relevant QuestionsDescribe the determinants of the long-run real interest rate and speculate on the sort of events that would make it fluctuate. Assume the short-run aggregate supply curve can be expressed algebraically asY = 4,800 + 3,000πand the dynamic aggregate demand curve can be written as Y = 5,000 – 1,000π.Find the numerical value for equilibrium output ...Why do you think the surge in oil prices in 2007-2008 had a much smaller impact on inflation expectations compared with the oil price shocks of the 1970’s? A recession may reflect declines in aggregate demand, aggregate supply, or both. Are swings in consumer sentiment characteristic of recessions? Plot a measure of sentiment (FRED code: UMCSENT) and discuss its evolution ...Consider again the rise in consumer confidence described in Problem 10. What would happen to inflation and output in the long run if the central bank remained committed to it original inflation target and respondedwith an ...
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