Using data from the St. Louis Federal Reserve
(FRED) (http://research.stlouisfed.org/fred2/),
analyze the relationship between the money
supply and inflation.
a. Find the values for M1 (M1SL) and the personal
consumption expenditure price index
(PCEPI) from 1959 to the present.
b. Calculate the year-over-year growth rate for
each variable.
c. In how many recessions does the inflation
rate increase? In how many recessions does
the inflation rate decrease?
d. What happened to the inflation rate and the
growth rate of the money supply during the
2007–2009 recession? Is this consistent with
the quantity theory of money? Explain.