Explain the relationship between the value of money and the price level as illustrated in the following hypothetical model. MS represents the money supply and MD represents total demand for money. When the supply of money increases from MS, to MS2 the price level increases from a price level of two to four. The value of the money, however, decreases from ½ to ¼. Value of Money, 1/P MS1 MS2 Price Level P 1 314 1.33 1/2 1/4 MD 2.

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