1.Go to the CANSIM database and retrieve the following series:
Canadian 91 day Treasury bill interest rate
The Canadian Consumer Price Index, all items
Convert this data to quarterly frequency. Construct the annual inflation rate over the period 1953Q1-2013Q4, and graph this series with the nominal interest rate. Calculate the real interest rate over the same period and graph this. Comment on the movement of these two variables.
2.In a Classical model, where the quantity theory of money holds, an increase in the nominal money stock will increase the price level. Explain why this does not affect the real wage. Your explanation should involve derivation of the classical aggregate supply curve.
3.Go to the CANSIMII database and retrieve data on the money supply as measured by M2 (Gross) and the Consumer Price Index. Convert these variables to quarterly frequency. Go to CANSIMII and retrieve GDP in constant dollars. Calculate the real money stock and plot the growth rate of this variable with the growth rate of real GDP. Can you relate this graph to any economic events since the late 1970’s?