Question

Go to the web site of the Federal Reserve Bank of St. Louis
(FRED)(research.stlouisfed.org/fred2/) and find the most
recent values and values from the same quarter in 1985 fro
nominal GDP, the Velocity of M1 Money Stock (M1V), and
the Velocity of M2 Money Stock (M2V).
a. Using these data, Calculate M1 money supply and the
M2 money supply for both periods.
b. Describe how M1 velocity and M2 velocity differ in the
two quarters.

Answer 1

Economic Research Division
Federal Reserve Bank of St. Louis
GDP	Gross Domestic Product, Billions of Dollars, Quarterly, Seasonally Adjusted Annual Rate
Frequency: Quarterly
observation_date	GDP

2017-01-01	19057.705
2017-04-01	19250.009
2017-07-01	19500.602
2017-10-01	19738.887

1985-01-01	4237.010
1985-04-01	4302.297
1985-07-01	4394.563
1985-10-01	4453.105

FRED Graph Observations
Federal Reserve Economic Data
Link: https://fred.stlouisfed.org
Help: https://fred.stlouisfed.org/help-faq
Economic Research Division
Federal Reserve Bank of St. Louis
M1V	Velocity of M1 Money Stock, Ratio, Quarterly, Seasonally Adjusted
Frequency: Quarterly
observation_date	M1V

2017-01-01	5.598
2017-04-01	5.537
2017-07-01	5.500
2017-10-01	5.488

1985-01-01	7.534
1985-04-01	7.470
1985-07-01	7.371
1985-10-01	7.261

FRED Graph Observations
Federal Reserve Economic Data
Link: https://fred.stlouisfed.org
Help: https://fred.stlouisfed.org/help-faq
Economic Research Division
Federal Reserve Bank of St. Louis
M2V	Velocity of M2 Money Stock, Ratio, Quarterly, Seasonally Adjusted
Frequency: Quarterly
observation_date	M2V

2017-01-01	1.430
2017-04-01	1.426
2017-07-01	1.427
2017-10-01	1.431

1985-01-01	1.802
1985-04-01	1.798
1985-07-01	1.799
1985-10-01	1.796

a.

Money Supply (M1)

observation_date

M1SL

2017-01-01	3404.5
2017-04-01	3476.6
2017-07-01	3545.7
2017-10-01	3596.5

1985-01-01	562.4
1985-04-01	575.9
1985-07-01	596.2
1985-10-01	613.3

Money Supply (M2)

observation_date

M2SL

2017-01-01	13330.2
2017-04-01	13500.5
2017-07-01	13662.1
2017-10-01	13790.2

1985-01-01	2350.9
1985-04-01	2392.5
1985-07-01	2443.3
1985-10-01	2479.3

b. The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period.

As, M1 veocity had decreased over period, it means A decreasing velocity of M1 indicated fewer short- term consumption transactions that had been taken place.

M2 velocity had also decreased over periode.The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals.