Scenario 3: The Monetary System and Policy

Below represents the monetary system in the US:

Small time deposits

$1,100 billion

Demand deposits and other checkable deposits

$800 billion

Savings deposits

$1,350 billion

Money market mutual funds

$900 billion

Traveler's checks

$30 billion

Large time deposits

$750 billion

Currency

$150 billion

Miscellaneous categories in M2

$40 billion

4. From the value of M2 you found in question 1, assume that the price level is 100 and real output is valued at $218.5 billion. What is the current velocity of money?

I believe I answered this correctly. If I calculated answer 1. wrong I will update my answer.

Velocity = (P x Y) /M

100 x $218.5 / $5,120 = 4.26

5.Continuing from the previous question. The Federal Reserve is currently using the M2 money supply as a guide to help them in their policy goals. The Federal Reserve wants to promote a healthy economy. The Federal Reserve, in an attempt to improve the economy, injects $500 billion into the economy over the course of the year. During that same year, real output grew to $223.83 billion. Based on this, what is the new rate of inflation?