Econ420S10_HW2_Solution

# Econ420S10_HW2_Solution - Economics 420 Spring 2010 Mike...

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Unformatted text preview: Economics 420 - Spring 2010 Mike Aguilar Intermediate Theory: Money, Income & Employment UNC at Chapel Hill HW # 2 Due - 02/01/2010 Instructions : • Please explain your answers thoroughly and show all necessary work. • State your assumptions carefully. • There may be more than one correct solution. • Please type your answers whenever possible. • Students may work together, but each must submit their own work. • The honor code is in effect. • Note: Maintain a ceteris paribus assumption when interpreting all shocks. 1. (5pts) Collect data from 1990 to 2009, and construct a graph of the velocity of money implied by the Quantity Theory of Money. Please use M1 as a proxy for M . Note that frequencies of these data may not be compatible, namely monthly and quarterly data. You can take the average of three monthly data to represent quarterly data, or you can choose the last month to represent that quarter. • What is the long term trend of velocity? Surmise a reason to explain this pattern. • What is the trend of velocity during the last two years? Surmise a reason to explain this pattern. Answer: 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Velocity M1 Velocity 1 • Velocity seems to have risen, possibly because of improvement in the banking system, such as the presence of ATM’s, credit card, and online system....
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## This note was uploaded on 11/02/2010 for the course ECON 420 taught by Professor Hill during the Spring '08 term at UNC.

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Econ420S10_HW2_Solution - Economics 420 Spring 2010 Mike...

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