Fill in the Value of Money column in the following table.Quantity of Money Demanded(Billions of dollars)Price Level (P)Value of Money (1/P)1.001.51.332.02.003.54.007.0Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, themoneythe typical transaction requires, and themoney 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 (MS,) set by the Fed. Then, referring to the previous table, use the blueconnected points (circle symbol) to graph the money demand curve. 1.25MS,1.000.75Money Demand0.50MS,0.251.4.5QUANTITY OF MONEY (Billions of dollars)According to your graph, the equilibrium value of money istherefore the equilibrium price level isNow, suppose that the Fed reduces the money supply from the initial level of $3.5 billion to $2 billion.In order to reduce 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).Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied isthan thequantity of money demanded at the initial equilibrium. This contraction 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 willVALUE OF MONEY

The equilibrium quantity and interest rate in the money market are determined by the demand and…

Fill in the Value of Money column in the following table. Quantity of Money Demanded Price Level (P) Value of Money (1/P) (Billions of dollars) 1.00 1.5 1.33 2.0 2.00 3.5 4.00 7.0 Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the money the typical transaction requires, and the money people will wish to hold in the form of currency or demand deposits. Assume that the Fed initially fices the quantity of money supplied at $3.5 billion. 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.