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Suppose the Fed were required to conduct monetary policy so as to hold the unemployment rate below 4%, the goal specified in he Humphrey-Hawkins Act....
a. Compute the velocity for each year
b. Compute the fraction of nominal GDP that was being held as money
c. What is your conclusion about the stability of velocity in this five-year period?
Teacher added in these notes:
I have received several questions on the Chapter 11 home work #2b. As a guide for the homework - velocity answers are very near 2.0 each year. The fraction of nominal GDP held as money is simply 1/V (velocity). You can show it as a whole number (such as 0.500 if velocity were 2.0) or as a percentage if you like 50.0%.) I hope that helps.