ECON 272

Out of Class Exercise

Due Monday, March 27

 

 (I will not accept this late - must be turned in AT THE BEGINNING OF class -- not 5 minutes after the class starts!!)

Assignments turned in 3 minutes after the start of class will be considered late.

Answers must be typed or I will not accept it.

(52 pts.)

 

LINK to this assignment is on the web page.

 

1.  According to about.com, it wasn't until the mid to late 1980s that ATMs became part of mainstream banking.

 

Therefore, let's see if the introduction of the ATM changed velocity.  Of course, there are other factors involved here - so this is just a very unscientific look at the data.

 

Calculate the Velocity of Money (V) in the United States for the first quarter of 1980, 1985, 1990, 1995, 2000, 2005, 2010, and 2015.

 

 

So you will have sixteen answers total (2 pts. each)  SHOW ALL WORK OR NOT POINTS.

 

Use Irving Fisher's formula:  MV = PxY
 

PxY or PxQ is nominal GDP

 

I am going to give you hints below as to where to find the data.  These are all of the hints I am going to give you -- don't email me and ask me to find this data for you!!  I am giving you too much information already!  Other questions are OK.

* Look it up at:     www.bea.gov
(hint = look at the interactive tables on the left hand side of the page - after a couple more clicks (you are looking for GDP and Personal Income - nominal GDP is just given as GDP - if it doesn't say "Real" then it is nominal - i.e., Table 1.1.5 - then use the modify button to find the dates you need).

M is the money supply

* Look it up at:     www.federalreserve.gov
(hint:  look under Data - Money Stock Measures.  You want to use the Data from Table 1.  To get historical data, click on bar graph in upper right corner, select package - Table 1, Go To Download, Download File.

For example (here is what you should have for 2015 for M1):

M1 money supply for 1st Q of of a year would be an average of the first three months.

Now simply plug the values into the equation, and solve for V.

 

Nominal GDP = 17,783.6 billion

M1 (ave. of Jan, Feb., March) = 2981.033

 

2981.033 (V) = 17,783.6

Divide 17,783.6 by 2981.033 to get V

Velocity = 5.96


 

2.  Now plot your two measures (M1 and M2) on two separate excel graphs.  In other words you should have one graph for M1 and one for M2.  Put "year" on the horizontal axis and your velocity numbers on the vertical axis. (10 pts. - 5 each)

 

3.  (This answer should not exceed 50 words) 

 

Do you see a trend? 

 

If so, can you think of a theory that that might explain the trend (other than the introduction of the ATM)?  Explain your theory.

If not, why do you think you didn't see a trend?  Discuss one reason.

(10 pts.)