Real-Time Data Analysis Exercise Click the following link to view GDP/GNP data f
ID: 1205389 • Letter: R
Question
Real-Time Data Analysis Exercise Click the following link to view GDP/GNP data from FRED^1. Then use that data to answer the following questions.^2 *Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. For this exercise you will need to enter data from FRED for real GDP (Series ID: GDPC1) and real potential GDP (Series ID: GDPPOT). Using data from FRED, enter the values in the following table for the latest observation of real GDP (fourth quarter of 2015) and for the value of real potential GDP ten years forward (fourth quarter of 2025). Note that these two periods are shown respectively, as 2015 - 10-01 and 2025 - 10 - 01 in FRED. (Enter your responses exactly as they appear in FRED.) Using the data recorded above, compute the average annual rate of growth in real GDP over the given ten-year span on the assumption that the economy achieves its potential output in the fourth quarter of 2025.^3 In other words, if real output grows from its level in the fourth quarter of 2015 to its potential as of the fourth quarter of 2025, the average annual rate of growth will be 2.17 percent. (Enter your response rounded to two decimal places.) On the assumption that the quantity theory of money holds, i.e. that the velocity of money will be constant during this interval, it may be concluded that price inflation of 5 percent requires that the money stock grow by percent. (Enter your response rounded to two decimal places.) Suppose this money growth target is adhered to, yet actual inflation over the period averages more than 5 percent per annum. From this it can be concluded that velocity during this period (1) 1: http://research.stlouisfed.org/fred2/categories/106 The "FRED" link will take you directly to the GDP/GNP page on FRED. To answer the questions, you will need to click on the individual series, and then you will need to click on the "view data" link. For any numerical questions, be sure to enter the value exactly as it appears in FRED. There are a lot of data points, so be sure to select the value that corresponds to the date asked for in the exercise. Navigation hint: For Google Chrome users, the browser window that will open when you click the "FRED" link will not have a back button. To go back, right mouse click anywhere on the page and choose "Back" from the popup menu. Alternatively, when navigating to another page, right mouse click the link and choose "Open link in new window" to open the information in a new window. Assuming simple annual compounding, the average annual rate of change in a variable is found using: X_2025 =X_2015(1 + g)^2015 - 2025 where X denotes the variable and g is its average annual rate of change (in decimal form) over a ten-year span. Solving for g yields: (X_2025/X_2015)^1/19 Finally, giving the average annual rate of change as a percent requires that g be multiplied by 100. increased decreased Answers given reflect the data available at the time the exam was printed, and thus are subject to change.Explanation / Answer
1. Average annual rate of growth = (20408/16470.6)1/10 - 1 = 1.023 - 1 = 0.023 = 2.3%
2. MV = PY
M = 0.05 X 16470.6 = 823.53
3. Increase as P component of quantity theory of money increases while money growth, real GDP remains the same.
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