Using data from the Federal Reserve Bank of St. Louis FRED database, graph the CPI inflation rate, M1 money growth, and M2 money growth for the US annually for the past 20 years. Briefly state below your graph (on the Excel spreadsheet) if the inflation rate more closely follows the growth in M1 or M2, and explain why this might be the case.
2) Using the same data source, graph the CPI inflation rate against the 3 month Treasury bill interest rate and the 10 year government bond interest rate for the same 20 year time period. Briefly state below your graph if the 3 month or 10 year interest rate is more sensitive to changes in inflation, and explain why this might be the case.
3) For your one page summary brief, discuss the impact that an increase in the expected inflation rate would have on your optimal portfolio allocation at this stage of your life (you may assume that you have a portfolio of $100K for this exercise). Be as specific as possible. (e.g. What other economic factors would affect your decision?, Does the current business cycle matter for your choice?, etc.)