Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Use the graph to answer the question
![The image is a graph illustrating the relationship between the value of money, the quantity of money, and money demand. The graph can be explained as follows:
- The vertical axis represents the "Value of Money."
- The horizontal axis represents the "Quantity of Money."
Two vertical lines are drawn, labeled as \(MS_1\) and \(MS_2\), indicating different levels of money supply. The graph shows how these money supply levels intersect with the money demand curve.
- The money demand curve is downward sloping, demonstrating that as the quantity of money increases, the value of money decreases.
Points of intersection are marked along the curve:
- **Point A**: Intersection of \(MS_1\) at a value of 2 on the vertical axis.
- **Point B**: Intersection of \(MS_2\) at a value of 2 on the vertical axis.
- **Point C**: Intersection of \(MS_1\) at a value of 1 on the vertical axis.
- **Point D**: Intersection of \(MS_2\) at a value of 1 on the vertical axis.
The graph visually represents the inverse relationship between money supply and the value of money in an economy, demonstrating how increases in money supply (\(MS_1\) to \(MS_2\)) can lead to lower value of money if demand remains unchanged.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdb0c8d04-ed98-4ae4-b983-ea7ea84f8dde%2F45749d90-9d6d-4655-a8e5-138dc4874091%2Fxhb4xkd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The image is a graph illustrating the relationship between the value of money, the quantity of money, and money demand. The graph can be explained as follows:
- The vertical axis represents the "Value of Money."
- The horizontal axis represents the "Quantity of Money."
Two vertical lines are drawn, labeled as \(MS_1\) and \(MS_2\), indicating different levels of money supply. The graph shows how these money supply levels intersect with the money demand curve.
- The money demand curve is downward sloping, demonstrating that as the quantity of money increases, the value of money decreases.
Points of intersection are marked along the curve:
- **Point A**: Intersection of \(MS_1\) at a value of 2 on the vertical axis.
- **Point B**: Intersection of \(MS_2\) at a value of 2 on the vertical axis.
- **Point C**: Intersection of \(MS_1\) at a value of 1 on the vertical axis.
- **Point D**: Intersection of \(MS_2\) at a value of 1 on the vertical axis.
The graph visually represents the inverse relationship between money supply and the value of money in an economy, demonstrating how increases in money supply (\(MS_1\) to \(MS_2\)) can lead to lower value of money if demand remains unchanged.
![Refer to the figure above. If the money supply is MS2 and the value of money is 2, then there is an excess:
Select one:
- a. Demand for money that is represented by the distance between points A and B.
- b. Supply of money that is represented by the distance between points A and C.
- c. Demand for money that is represented by the distance between points A and C.
- d. Supply of money that is represented by the distance between points A and B.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdb0c8d04-ed98-4ae4-b983-ea7ea84f8dde%2F45749d90-9d6d-4655-a8e5-138dc4874091%2F4ff9wtk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Refer to the figure above. If the money supply is MS2 and the value of money is 2, then there is an excess:
Select one:
- a. Demand for money that is represented by the distance between points A and B.
- b. Supply of money that is represented by the distance between points A and C.
- c. Demand for money that is represented by the distance between points A and C.
- d. Supply of money that is represented by the distance between points A and B.
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