Go to the St. Louis Federal Reserve FRED database, and find data on the Bank Prime Loan Rate (MPRIME), the Effective Fed Funds Rate (FEDFUNDS), and the 3-Month Treasury Bill: Secondary Market Rate (TB3MS). Use data from the most recent month available and data from the same month one year ago, five years ago, and ten years ago.

a) Calculate the change in interest rates on money market instruments over these periods.

b) Now, find data on the M1 money stock (M1SL) and a measure of the price level, (PCEPI). Calculate the real money supply using the two data series, and then calculate the total percent change in the real money stock from one, five, and ten years earlier.

c) Compare the movements in interest rates to the growth rate in the real money supply over the two horizons. Are the results consistent with liquidity preference theory? Briefly explain.