Question

Year	Money Supply (M2)	Nominal GDP	Velocity of Money(ratio)	Consumer Price Index
1995	3,492.40	10543.644	2.155	2.87081
1996	3,647.90	10817.896	2.147	2.79070
1997	3,824.80	11284.587	2.179	3.03814
1998	4,046.30	11832.486	2.175	1.63112
1999	4,393.10	12403.293	2.135	1.66667
2000	4,656.30	12924.179	2.139	2.79296
2001	4,965.00	13222.690	2.090	3.72120
2002	5,440.10	13397.002	1.975	1.19590
2003	5,790.40	13634.253	1.921	2.75746
2004	6,061.10	14221.147	1.954	2.02629
2005	6,410.60	14771.602	1.988	2.84487
2006	6,709.90	15267.026	2.021	4.01879
2007	7,094.80	15493.328	1.997	2.07577
2008	7,491.10	15671.383	1.936	4.29470
2009	8,262.40	15155.940	1.733	-0.11359
2010	8,445.60	15415.145	1.736	2.62111
2011	8,825.80	15712.754	1.723	1.70078
2012	9,730.20	16129.418	1.639	3.00877
2013	10,471.40	16382.964	1.579	1.68406

We had two financial crises since 2000, 2000 dot.com bubble, 2008-2009 financial crisis. From FRED website, find the following data from 1995 to 2013, and make a graph. Explain the general trends of each series, and compare them between the two crises.

1. Money supply (M2)
2. Nominal GDP
3. Velocity of Money
4. Consumer Price Index

Answer 1

• Money supply.
  Money supply plays a significant role in the stability and business cycle soothing in any economy. Policymaker controls the money supply to stabilize price, output and other economic variables. The trend in money supply since 1995 is upward rising. It rose more than 300% during this period. During 200 crisis the money supply was $4656 billion, and it almost doubled during the 2008 recession.
  
  
• Nominal GDP
  In almost 20 years the nominal GDP has not shown much improvement. It increased only by 6 billion for 20 years. The nominal GDP slowed down during the 2000 recession and even dropped from its previous growth in 2008.
  
• Velocity of money
  The velocity of money gives the number of times one unit of money is used to buy goods and services produced within the economy per unit of time. The velocity of money provides the average of nominal GDP to the money supply. The velocity of money for the said period has fallen from 2 to 1.5. In the 2000 recession, it was 2. In 2008 it falls further to 1.8.
  
• Consumer Price Index:
  The consumer price index is the average price of a market basket during a particular period usually a year. The CPI is most volatile of all the data discussed above. The CPI during this time does shows an upward trend. The percentage change in CPI was high particularly during 2000 and 2008 recessions.