cost of $1. (Hint: Integer constraints matter here.) for a person who earns $1,600 per What is the individual's average cash balance? t per month in a savings account, and has a transaction Suppose income rises to $1,800. By what percentage does the individual's demand for money change? Empirical The chapter reviewed the different measures of money stock (MI and M2). You can use any of these money stock measures in order to determine the velocity of money. What is the relationship between MI velocity and M2 velocity? Which is the largest and which is the smallest? Go to http://fred.stlouisfed.org. Download data for MI and M2 stock by clicking on "Categories." under "Money, Banking, & Finance" select "Monetary Data." Then, download GDP data (under "National Accounts," select "National Income & Product Accounts," "Gross Domestic Product (GDP) and Components"). Divide the GDP series by the MI (or M2) series, since velocity of MI (or M2) is simply GDP divided by MI (or M2) stock. Then, take a look at these two alternative velocity measures in order to confirm the answer you got for the previous question. 2. Is there today in real terms more U.S. currency outstanding per capita than 30 years ago? To answer this question, go to http://fred.stlouis.org and get the data in order to fill in the first three columns of the table. To get the currency data, click on "Categories," under "Money, Banking, & Fi- nance" select "Monetary Data," then on "MI and Components," and on "CURRNS." Population can be found under "Population, Employment, & Labor Markets" and CPI data can be found under "Prices" then "Consumer Price Indexes (CPI and PCE)." PER CAPITA REAL CURRENCY U.S. POPULATION CPI (1982- ($ BILLION) (THOUSANDS) 84 = 100) CURRENCY
1 What is noentry, and why does anyone want it? To what exton would it he possible to design a society in which there was no would the problems he ' Could currency at least be eliminated? How? (Lest al anworldly, you should know that some people are beginning to talk of a "cash in this century y Do you think credit card credit limits should be counted in the money stock? w Discuss the various factors that go into an individual's decision regarding how checks to take on a vacation. 5. Explain the concept of the opportunity cost of holding money. 6. The demand for nominal balances rises with the price level. At the same causes the real demand to fall. Explain how these two assertions can both be 7. "Muggers favor deflation." Comment. Technical 1. Evaluate the effects of the following changes on the demand for MI and functions of money do they relate to? a. "Instant-cash" machines that allow 24-hour withdrawals from savings a b. The employment of more tellers at your bank. C. An increase in inflationary expectations. d. Widespread acceptance of credit cards. e. Fear of an imminent collapse of the government. f. A rise in the interest rate on time deposits. 2. g. The rise of e-commerce. a. Is velocity high or low relative to trend during recessions? Why? b. How can the Fed influence velocity?
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