Use the orange line (square symbol) to plot the initial money supply (MS₁) set by the Fed. Then, referring to the previous table, use the blueconnected points (circle symbol) to graph the money demand curve.VALUE OF MONEY2.001.751.501,251.000.750.500.25001235QUANTITY OF MONEY (Billions of dollars)According to your graph, the equilibrium value of money isOMS,-O-Money DemandMS2Ⓒtherefore the equilibrium price level is,Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion.In order to increase the money supply, the Fed can use open market operations tothe public.Use the purple line (diamond symbol) to plot the new money supply (MS₂).than theImmediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied isquantity of money demanded at the initial equilibrium. This expansion in the money supply will,people's demand for goods andservices. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will andthe value of money will, The following table gives the quantity of money demanded at various price levels (P), the money demand schedule.In the following table, fill in the column labeled Value of Money.Price Level (P) Value of Money (1/P)0.801.001.332.00Quantity of Money Demanded(Billions of dollars)2.02.54.08.0Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, therequired to complete transactions, and the money people will want to hold in the form of currency or demand deposits.Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion.moneyUse the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blueconnected points (circle symbol) to graph the money demand curve.

Value of money is inversely proportional to the price level.

The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 8.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion. money Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.

The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Price Level (P) Value of Money (1/P) 0.80 1.00 1.33 2.00 Quantity of Money Demanded (Billions of dollars) 2.0 2.5 4.0 8.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to complete transactions, and the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $2.5 billion. money Use the orange line (square symbol) to plot the initial money supply (MS) set by the Fed. Then, referring to the previous table, use the blue connected points (circle symbol) to graph the money demand curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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