Posted: February 8th, 2015

Business Cycle

Paper, Order, or Assignment Requirements

For this part, the the data provided (see attachment: DataForPart3.xls) which is similar to the data you collected in Part 1 of this assignment, but has been made consistent for periods (monthy and monthly, quaterly to quaterly and so on….).  You will use the CORREL (correlation) function in Excel* or similar program to calculate the simple correlation coefficient (a simple definition of the correlation coefficient is: A measure that determines the degree to which two variable’s movements are associated. That is a correlation coeficient of +1 suggests that the variables move perfectly together; a correlation coefficient of 0 means that they have no relationship in their levels and a corrilation coeficient of -1 suggests that they move in opposite directions perfectly. –Source: http://www.investopedia.com/terms/c/correlationcoefficient.asp) You should calculate the correlation coeficient for the following pairs of variables:

M2 and CPI

M2 and GDP Deflator

Monetary Base and CPI

Monetary Base and GDP Deflator

What do your correlation coefficients suggest about measures of the money stock and the price level and output (GDP)? Explain your answer.

Finally, using the measures you have of Nominal GDP and M2; and Nominal GDP, and the monetary base calculate and graph two measures of velocity.  How do they compare?  What is happening to velocity over the time period covered?  Explain, using what we have learned in class why this is happening. NOTE: If you need help creating a graph in Excel, review the attachment: CreatingaChartinExcel.PDF.

Recall that the way to compute velocity is to first know the quantity equation M (= A measure of the Money Supply) times V (velocity) = Nominal GDP (or the price level times real GDP).

Please note you should have downloaded or been provided with a measure of nominal GDP so you DO NOT have to create it.

PLEASE NOTE: The spreadsheet provided has 7 (seven) tabs one for each part of the problem and the first providing an example of the Correl function.

*For example the spread sheets provided have an example of Series 1 and Series 2 which are barely correlated and to the extent that they are they move in opposite directions (correlation coefficient = -0.108985471). The correlation coefficient is calculated as =CORREL(A2:A51,B2:B51) (don’t forget the equals sign).

This assignment requires you to submit two attachments – your spreadsheet with the data and graph (chart) and a document with your explanations. Save your documents in this format:

lastname_part3data.xls

lastname_part3txt.doc

NOTE: Unless you had personal knowledge of the events described in your answers you should provide proper citation(s). To find out how to compose proper citations go tohttp://citationmachine.net/index2.php (“son of citation”). You may use the MLA or APA method. The reader just needs to be able to find the source of the ideas and/or words in your answers – if you do use the words of others please remember quotation marks.