Question: A scatter plot can reveal a relationship between two indicators. Construct a scatter plot of annual data beginning in 1959 for inflation and money growth.

A scatter plot can reveal a relationship between two indicators. Construct a scatter plot of annual data beginning in 1959 for inflation and money growth. Measure these as the percent change from a year ago of consumer prices (FRED code: CPIAUCSL) and M2 (FRED code: M2SL), respectively. Then, display a second scatter plot of annual data beginning in 1959 for inflation (measured as before) and the federal funds rate (FRED code: FEDFUNDS). Which indicator is more closely linked to inflation: money growth or the interest rate? Does that tell us which is the better policy instrument?

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The scatter plots are below The federal funds rate appears more closely linked to inflation However ... View full answer

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