Economic Analysis of Data

Abstract

The paper is about the analysis of data of macroeconomic variables of United States over the past two years. These variables include inflation, money supply, short term interest rate, long term interest rate and analysis of yield curve. The study concludes that money supply is not affecting inflation in case of US while the federal reserve system of US has decided to keep interest rates low in order to compensate the economic recession period of 2008. The yield curve of year 2011 shows the increasing trend in profit returns.

Introduction1

Discussion1

Money Supply and Inflation1

Short-Term Interest Rates over the Past Two Years2

Long-Term Interest Rates over the Past Two Years3

Yield curve for Treasury Securities4

Conclusion5

References6

Economic Analysis of Data

Introduction

The study is about the investigation of impact of money supply on inflation rate in case United States of the year 2010 and 2011. The study also covers the analysis of short term interest rate and long term interest rate and their impact on the economy of the country. In the end of the paper a US treasury yield curve is presented of year 2011. Yield curve of United States shows the benchmark for U.S interest rates globally.

Discussion

Money Supply and Inflation

According to the quantity theory of money there is strong correlation between the money supply and inflation rate. Money supply is defined as the circulation of money in any country while inflation refers the consistent rise in price of goods and services. Generally both the variables are directly with each other means if there is increase in money supply the inflation occurs and vice versa. In the case of United States there can be seen a huge increase in money supply but inflation cannot be observed in the economy. Data is collected on inflation rate and money supply of last two years 2010 and 2011 from the website of World Bank.

Years

Inflation

Money Supply

2010

0.7

-2.8

2011

2.2

6.7

Table 1(Source: World Bank)

The above table shows that the money supply in the country increased from -2.8 to 6.7 in 2011 while inflation rate also shows increasing trend but not as money supply. (Canova Fabio and F.Ferroni, 2012) concluded in his study that due to policy shocks the money supply is not affecting inflation rate in US. It is clear in quantity theory of money that money supply produce inflation only when velocity and quantity of goods exchange remains same. But in the case of United States the velocity and exchange of goods are ...