The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (PP).Fill in the Value of Money column in the following table.Price Level (P)Value of Money (1/P)Quantity of Money Demanded1.00 1.51.33 2.02.00 3.54.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the (a. more, b. less) money the typical transaction requires, and the (a. more, b. less) money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion.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 blue connected points (circle symbol) to graph the money demand curve. (Graph in image) According to your graph, the equilibrium value of money is _____ , therefore the equilibrium price level is ____ . Now, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 billion.In order to increase the money supply, the Fed can use open market operations to (a. sell bonds to, b. buy bonds from) the public. Use the purple line (diamond symbol) to plot the new money supply (MS2). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is (a. greater, b. less) than the quantity of money demanded at the initial equilibrium. This expansion in the money supply will (a. increase, b. reduce) 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 (a. rise, b. fall) and the value of money will (a. rise, b. fall) According to your graph, the equilibrium value of money istherefore the equilibrium price level isNow, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 billion.In order to increase the money supply, the Fed can use open market operations toUse the purple line (diamond symbol) to plot the new money supply (MS₂).the public.than theImmediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied ispeople's demand for goods andquantity of money demanded at the initial equilibrium. This expansion in the money supply willservices. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services willand the value of money will 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 MONEY1.251.000.750.500.250023 4 56QUANTITY OF MONEY (Billions of dollars)178MS₁OMoney DemandMS₂(?)

Question

The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (PP).Fill in the Value of Money column in the following table.Price Level (P)Value of Money (1/P)Quantity of Money Demanded1.00    1.51.33    2.02.00    3.54.00    7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the (a. more, b. less) money the typical transaction requires, and the (a. more, b. less) money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fixes the quantity of money supplied at $3.5 billion.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 blue connected points (circle symbol) to graph the money demand curve. (Graph in image) According to your graph, the equilibrium value of money is _____ , therefore the equilibrium price level is ____ . Now, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 billion.In order to increase the money supply, the Fed can use open market operations to (a. sell bonds to, b. buy bonds from) the public. Use the purple line (diamond symbol) to plot the new money supply (MS2). Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is (a. greater, b. less) than the quantity of money demanded at the initial equilibrium. This expansion in the money supply will (a. increase, b. reduce) 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 (a. rise, b. fall) and the value of money will (a. rise, b. fall) According to your graph, the equilibrium value of money istherefore the equilibrium price level isNow, suppose that the Fed increases the money supply from the initial level of $3.5 billion to $7 billion.In order to increase the money supply, the Fed can use open market operations toUse the purple line (diamond symbol) to plot the new money supply (MS₂).the public.than theImmediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied ispeople's demand for goods andquantity of money demanded at the initial equilibrium. This expansion in the money supply willservices. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services willand the value of money will 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 MONEY1.251.000.750.500.250023 4 56QUANTITY OF MONEY (Billions of dollars)178MS₁OMoney DemandMS₂(?)

Accepted Answer

The need for liquid assets is reflected in the demand for money. People keep cash in their safes…

Price Level (P)	Value of Money (1/P)	Quantity of Money Demanded
1.00		1.5
1.33		2.0
2.00		3.5
4.00		7.0