2. Money supply, money demand, and adjustment to monetary equilibrium The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following tabic, fill in the column isbeled Value of Money. Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the required to compiete transactions, ane the money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially foxes the quantity of money supplied at $3.5 callion. Use the orange line (square symbil) to plot the initial moner supaly (MS ) set by the fect, Then, referring to the previous table, use the blue connected points (arde symbol) to graph the moner demand curve. Use the orange line (square symboil) to plot the hitial money supply (MSS) set by the fed. Then, referring to the previous table, use the blue connected points (circle symbod) to graph the money demand curve. According to your groph, the equistitim value of money is therefore the equabium price level is According to your graph, the equilibrium value of money is therefore the equalibrium price level is Now, suppose thet the fed increases the money supply from the initial level of $3.5 ballion to $7 billon. In order to increase the money supply, the fed can use open market operations to the puble. Use the purpie line (diamond symbol) to plot the new money supply (M2) ). Immediataly after the Fed changes the money supply from its initial equitibrium level, the quantity of money supplied is than the quantify of money demended at the initial equilibrium. This expansion in the money supply will people's demand for goods and servicns. In the long run, since the economy's abaity co produce goods and services has not changed, the prices of goods and services will the value of money will Accorting to your graph, the equilibrium value of money is therefore the equilibrium price level is Now, wuppose that the Fed increases the monty suppiy from the inital level of $3.5 bellien to 37 billion. In erder to increase the money supply, the fed can use open market operatiens to the puble. Use the purple line (ditamond symbol) to plot the new money suaply (MS2). Immedately after the Fed changes the money supply from its ininlal equil beium level, the quantity of money suppled is than the quantity of monty demanded at the initial equilibritum. This expsnsion in the money suppiy will people's 4 servitess. In the long rum, since the economy's ability to produce goods and services has not changed, the prices of good the velue of moner will According to your graph, the equllibrium 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 billien to $7 billion. In order to increase the money supply, the Fed can use open market operations to the public. the the purple line (diamond symbol) to plot the new money supply (MSz). Trumediately after the Fod changes the meney supply from its intial equllibrium level, the quan isupplied is than the quanticy of money demanded at the initial equilibrium. This expanaion in the meney supply will people's demand for goods and servibes, Is the lang run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will the vaiue at money will