Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 2

The chapter reviewed the different measures of money stock ( M 1 and M 2). You can use any of these money stock measures in order to determine the velocity of money. What is the relationship between M 1 velocity and M 2 velocity Which is the largest and which is the smallest Go to http://research.stlouisfed.org/fred2. Download data for M 1 and M 2 stock by clicking on "Categories," under "Money, Banking, Finance" select "Monetary Data." Then, download GDP data (under "National Accounts," select "National Income Product Accounts," "Gross Domestic Product (GDP) and Components"). Divide the GDP series by the M 1 (or M 2) series, since velocity of M 1 (or M 2) is simply GDP divided by M 1 (or M 2) stock. Then, take a look at these two alternative velocity measures in order to confirm the answer you got for the previous question.