Question

You can find Money Supply data by going to: federalreserve.gov/

• In order, do the following:
  • Select the "Data" tab
  • Select "Money Stock Measures - H.6"
  • Select "Data Download"
  • Under "Select a Preformatted Data Package"
  • Using the down arrow towards the right, select "H.6 Historical Table 1"
  • Select "Format Package"
  • Check "Dates"
  • For dates use: January 2016 and December 2019
  • Under "File Type" use Excel if you have it, otherwise use CSV.
  • Leave everything else the same.
  • Click "Go to Download"
  • Click "Download File"
  • Open the Excel or CSV file that is downloaded.
  • You will see a table with 5 columns, the first column being dates. Use the "M1.M" column (the first column). You need money supply data for 4 years, use the December M1.1 number for each year to calculate velocity starting with 2016. Remember that the numbers you downloaded are in billions.
  • Submit the velocity for each year, showing me your work, and answering the questions below.

Answer the following questions with the velocity over the last 4 years.

1. How stable was "V" during this period (2016-2019)?
2. Did "V" increase or decrease over the period?

Answer 1

Download Page	H.6 Statistical Release for Jul 16, 2020
Series Description	M1; Seasonally adjusted	M2; Seasonally adjusted	M1; Not seasonally adjusted	M2; Not seasonally adjusted
Unit:	Currency	Currency	Currency	Currency
Multiplier:	1000000000	1000000000	1000000000	1000000000
Currency:	USD	USD	USD	USD
Unique Identifier:	H6/H6_M1/M1.M	H6/H6_M2/M2.M	H6/H6_M1/M1_N.M	H6/H6_M2/M2_N.M
Time Period	M1.M	M2.M	M1_N.M	M2_N.M
2016-01	3097.8	12458	3094	12467.2
2016-02	3128.9	12534.3	3096.6	12506.1
2016-03	3152.3	12597.9	3179.8	12673.9
2016-04	3200.8	12687.2	3234.5	12767.5
2016-05	3239	12756	3234.8	12697.4
2016-06	3247.1	12823.6	3247	12777.9
2016-07	3248.7	12882.3	3244.7	12839.3
2016-08	3317.6	12969.7	3319	12937
2016-09	3326.8	13030.7	3296.4	13007.7
2016-10	3334.1	13099.3	3327.7	13072.4
2016-11	3352.8	13169.6	3328.5	13185.5
2016-12	3339.8	13198.9	3384	13293.8
2017-01	3388.3	13275.4	3388.6	13275.7
2017-02	3402.7	13341.1	3358	13299.5
2017-03	3448.1	13411.4	3477.3	13485.6
2017-04	3455.6	13476.8	3489.1	13558.5
2017-05	3518.7	13530.5	3517.1	13467.3
2017-06	3527.6	13558.2	3527.7	13515.2
2017-07	3551.3	13618.3	3548.2	13577.3
2017-08	3585.3	13673.8	3588.6	13646.1
2017-09	3574.4	13716.4	3542.2	13696.5
2017-10	3603.9	13769	3601.6	13741.6
2017-11	3628.1	13794	3603.5	13810.9
2017-12	3607.3	13835.7	3653	13936.6
2018-01	3649.5	13858.4	3652.6	13856.2
2018-02	3619.7	13892.8	3566.9	13842.2
2018-03	3661.8	13952.6	3689	14024
2018-04	3662.3	13989.1	3698.8	14068
2018-05	3658	14054.9	3656.3	13988.9
2018-06	3657.5	14120	3654.8	14080.6
2018-07	3677	14153	3678	14115.1
2018-08	3686.3	14197	3686.1	14171.6
2018-09	3703.9	14228.5	3671.5	14207.2
2018-10	3719.1	14235.4	3718.4	14209.7
2018-11	3698	14245.4	3676.6	14263.2
2018-12	3746.4	14351.8	3796.8	14456.5
2019-01	3740.5	14434.6	3745.4	14433.6
2019-02	3759.7	14464.4	3702.1	14411.4
2019-03	3729.9	14511.8	3753.9	14582.9
2019-04	3781	14558.3	3819.8	14633.9
2019-05	3792.4	14653.2	3787.8	14584.1
2019-06	3832.8	14780.7	3828.1	14743.5
2019-07	3858.2	14859.9	3860.8	14822.7
2019-08	3853.3	14931.2	3847.2	14903.9
2019-09	3903.2	15020.8	3874.5	14994.9
2019-10	3922.8	15147.1	3921.7	15121.1
2019-11	3947.4	15247.6	3922.2	15266.8
2019-12	3976.9	15302.5	4041.2	15418.2

Velocity of money is defined as the ratio of nominal GDP to Money supply.

According to Fisher's quantity theory of Money:

MV = PY where, M: money supply, V: Velocity, PY : Nominal GDP

For this question, we have taken GDP at current price data from world bank for United states for 4 years i.e. 2016-2019. M1.1 data for December for each year is taken as the value of Money supply. Therefore, we have:

	Nominal GDP (world bank data)($)	Money Supply (M1.1 in december for each year)	Velocity (Nominal GDP/ Money Supply)
2016	1,87,07,18,82,35,000.00	33,39,80,00,00,000.00	5.60128997
2017	1,94,85,39,38,53,000.00	36,07,30,00,00,000.00	5.40165605
2018	2,05,80,22,30,00,000.00	37,46,40,00,00,000.00	5.49333307
2019	2,14,27,70,00,00,000.00	39,76,90,00,00,000.00	5.38804094

The velocity of money is the frequency at which one unit of currency changes hands i.e. the number of times a dollar is used to make consumption. A declining velocity of money indicates that consumers are making fewer short term consumption transaction. Velocity has remained quite stable around 5.5 during the said years. It has shown both upward and downward trend during the said years with decline of 3.56% from 2016 to 2017 and then a rise of 1.70% from 2017 to 2018 and a decline of 1.92% from 2018 to 2019. However, the change has been marginal and therefore, it has remained stable from 2016 to 2019.