Link from the text Web site to the St. Louis Fed site for data on (1) nominal GDP and (2) interest rates on 3-month Treasury bills. Link to www.sweepmeasures.com for data on M1 adjusted for sweep accounts (use the series labeled M1RS).
a. Using these data, compute the velocity of money for each year from 1980 to the present. Make a graph showing velocity and the T-bill rate over time.
b. Does velocity fluctuate from year to year? What might explain these movements?
c. What is the long-run trend in velocity? What might explain this trend?