The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P). NOTE:Options for "Value of Money column" chart are as follows-->for price level 1.00 options for value of money are (0.50, 1.00, 2.00)-->for price level 1.33 options for value of money are (0.67, 0.75, 1.33, 2.66)-->for price level 2.00 options for value of money are (0.50, 1.00, 2.00, 4.00)-->for price level 4.00 options for value of money are (0.25, 2.00, 4.00, 8.00) NOTE:The lower the price level, the ______ (more or less) money the typical transaction requires, and the ______ (more or less) money people will wish to hold in the form of currency or demand deposits.NOTE:Create the graph as stated in problemNOTE:According to your graph, the equilibrium value of money is ______ (0.25 or 0.50 or 0.75 or 1.00), therefore the equilibrium price level is ______ (1.00 or 1.33 or 2.00 or 4.00)NOTE:In order to increase the money supply, the Bank of Canada can use open-market operations to _______ ("sell bonds to" or "buy bonds from") the public.NOTE:At the initial equilibrium value of money and price level, the quantity of money supplied is now _______ (greater or less) than the quantity of money demanded. This expansion in the money supply will ________ (increase or 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 _______ (rise or fall) and the value of money will _________ (rise or fall) The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).Fill in the Value of Money column in the following table.Quantity of Money DemandedPrice Level (P) Value of Money (1/P)(Billions of dollars)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, themoney thetypical transaction requires, and themoney people will wish to hold in the form of currency or demand deposits.Assume that the Bank of Canada 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 Bank of Canada. Then, referring to the previous table, use theblue connected points (circle symbol) to graph the money demand curve.1.251.00MS,Money Demand0.750.50MS20.253567.8.QUANTITY OF MONEY (Billions of dollars)According to your graph, the equilibrium value of money istherefore the equilibrium price level isVALUE OF MONEY Now consider the relationship between the price level and the quantity of money that people demand. The lower the price level, themoney thetypical transaction requires, and themoney people will wish to hold in the form of currency or demand deposits.Assume that the Bank of Canada 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 Bank of Canada. Then, referring to the previous table, use theblue connected points (circle symbol) to graph the money demand curve.1.25MS,1.000.75Money Demand0.50MS,0.2523478.QUANTITY OF MONEY (Billions of dollars)According to your graph, the equilibrium value of money istherefore the equilibrium price level isNow, suppose that the Bank of Canada increases the money supply from the initial level of $3.5 billion to $7 billion.In order to increase the money supply, the Bank of Canada can use open-market operations tothe public.Use the purple line (diamond symbol) to plot the new money supply (MS2).At the initial equilibrium value of money and price level, the quantity of money supplied is nowThis expansion in the money supply willthan the quantity of money demanded.people's demand for goods and services. In the long run, since the economy's ability toproduce goods and services has not changed, the prices of goods and services willand the value of money willVALUE OF MONEY

Value of money is inversely related to price level. Value of money = 1/price level

Answered: following table shows a money demand…

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 11QP

See similar textbooks

Related questions

Question

The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).

NOTE:

Options for "Value of Money column" chart are as follows

-->for price level 1.00 options for value of money are (0.50, 1.00, 2.00)

-->for price level 1.33 options for value of money are (0.67, 0.75, 1.33, 2.66)

-->for price level 2.00 options for value of money are (0.50, 1.00, 2.00, 4.00)

-->for price level 4.00 options for value of money are (0.25, 2.00, 4.00, 8.00)

NOTE:

The lower the price level, the ______ (more or less) money the typical transaction requires, and the ______ (more or less) money people will wish to hold in the form of currency or demand deposits.

NOTE:

Create the graph as stated in problem

NOTE:

According to your graph, the equilibrium value of money is ______ (0.25 or 0.50 or 0.75 or 1.00), therefore the equilibrium price level is ______ (1.00 or 1.33 or 2.00 or 4.00)

NOTE:

In order to increase the money supply, the Bank of Canada can use open-market operations to _______ ("sell bonds to" or "buy bonds from") the public.

NOTE:

At the initial equilibrium value of money and price level, the quantity of money supplied is now _______ (greater or less) than the quantity of money demanded. This expansion in the money supply will ________ (increase or 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 _______ (rise or fall) and the value of money will _________ (rise or fall)

The following table shows a money demand schedule, which is the quantity of money demanded at various price levels (P).
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 Bank of Canada 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 Bank of Canada. Then, referring to the previous table, use the
blue connected points (circle symbol) to graph the money demand curve.
1.25
1.00
MS,
Money Demand
0.75
0.50
MS2
0.25
3
5
6
7.
8.
QUANTITY OF MONEY (Billions of dollars)
According to your graph, the equilibrium value of money is
therefore the equilibrium price level is
VALUE OF MONEY

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 Bank of Canada 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 Bank of Canada. Then, referring to the previous table, use the
blue connected points (circle symbol) to graph the money demand curve.
1.25
MS,
1.00
0.75
Money Demand
0.50
MS,
0.25
2
3
4
7
8.
QUANTITY OF MONEY (Billions of dollars)
According to your graph, the equilibrium value of money is
therefore the equilibrium price level is
Now, suppose that the Bank of Canada increases the money supply from the initial level of $3.5 billion to $7 billion.
In order to increase the money supply, the Bank of Canada can use open-market operations to
the public.
Use the purple line (diamond symbol) to plot the new money supply (MS2).
At the initial equilibrium value of money and price level, the quantity of money supplied is now
This expansion in the money supply will
than the quantity of money demanded.
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
VALUE OF MONEY

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.