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)0.801.001.332.00Now 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 $3.5 billion.VALUE OF MONEY8Use 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.2.001.751.501.251.000.75Quantity of Money Demanded(Billions of dollars)1.52.03.50.5002507.03QUANTITY OF MONEY (Billions of dollars)7101MS,Money DemandMmoney? 200VALUE OF MONEY1.751.501.251.000.750.5062101une money demand curve.23QUANTITY OF MONEY (Bons of dollars)MSMoney DemandMS₂. therefore the equilibrium price level isAccording to your graph, the equilibrium value of money isNow, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 bilion.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 (MS).Immediately 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 willthan thepeople'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 willSave & ContinueContinue without saving

The money demand curve is downward sloping. The money supply in the economy is set by the central…

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) 1.5 2.0 3.5 7.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the money required to complete transactions, and the money people will want to hold in the form of currency or demand deposits.

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) 1.5 2.0 3.5 7.0 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the money required to complete transactions, and the money people will want to hold in the form of currency or demand deposits.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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
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 $3.5 billion.
VALUE OF MONEY
8
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.
2.00
1.75
1.50
1.25
1.00
0.75
Quantity of Money Demanded
(Billions of dollars)
1.5
2.0
3.5
0.50
025
0
7.0
3
QUANTITY OF MONEY (Billions of dollars)
7
101
MS,
Money Demand
M
money
?

200
VALUE OF MONEY
1.75
1.50
1.25
1.00
0.75
0.50
621
0
1
une money demand curve.
2
3
QUANTITY OF MONEY (Bons of dollars)
MS
Money Demand
MS₂
. therefore the equilibrium price level is
According to your graph, the equilibrium value of money is
Now, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 bilion.
In order to increase the money supply, the Fed can use open market operations to
the public.
Use the purple line (diamond symbol) to plot the new money supply (MS).
Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is
quantity of money demanded at the initial equilibrium. This expansion in the money supply will
than the
people's demand for goods and
services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will and
the value of money will
Save & Continue
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