2. Money supplyIr money demand, and adjustment to monetary equilibrium 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 I P) (Billions of dollars) 1.00 l 1.5 1.33 l 2.0 2.00 l 3.5 4.00 l 7.0 NowI consider the relationship between the price level and the quantity of money that people demand. The lower the price level, the V money the typical transaction requires, and the V money people will wish to hold in the form of currency or demand deposits. Assume that the Bank of Canada initially xes the quantity of money supplied at $3.5 billion. Use the orange line (square symbol) to plot the initial money supply (M81) 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 O 0.75 Money Demand VALUE OF MONEY 0.50 MS, 0.25 0 0 1 2 3 4 5 6 7 QUANTITY OF MONEY (Billions of dollars)According to your graph, the equilibrium value of money is V , therefore the equilibrium price level is V . 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 openmarket operations to V the public. Use the purple fine (diamond symbol) to plot the new money supply {M32}. At the initial equilibrium value of money and price level, the quantity of money supplied is now V than the quantity of money demanded. This expansion in the money supply will V 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 V and the value of money will V . 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 0.50 2.00 3.5 4.00 1.00 7.0 2.00 Now consider the relationship I the price level and the quantity of money that peopleFill 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 0.67 4.00 7.0 0.75 Now consider the relationship b the price level and the quantity of money that 1.33 the typical transaction requires e money people will wish to hold in the 2.66Fill 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 0.50 Now consider the relationship 1.00 the price level and the quantity of money th the typical transaction requires money people will wish to hold in the 2.00 Assume that the Bank of Canad 4.00 ly fixes the quantity of money supplied at $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 0.25 Now consider the relationship the price level and the quantity of money tha the typical transaction requires 2.00 e money people will wish to hold in the 4.00 Assume that the Bank of Cana ly fixes the quantity of money supplied at $3 8.00able. uantity of Money Demanded (Billions of dollars) 1.5 2.0 3.5 7.0 vel and the quantity of money that people demand. The lower the price level, the money ney people will wish to hold in the form of currency or demand deposits. more quantity of money supplied at $3.5 billion. less itial money supply (MS1) set by the Bank of Canada. Then, referring to the previous table, use the e money demand curve.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 the typical transaction requires, and the money people will wish to hold in the f Assume that the Bank of Canada initially more e quantity of money supplied at $3.5 less Use the orange line (square symbol) to plot the initial money supply (MS, ) set by th blue connected points (circle symbol) to graph the money demand curve.0 0 2 3 4 5 6 8 QUANTITY OF MONEY (Billions of dollars) According to your graph, the equilibrium value of money is therefore the equilibrium price level is 0.25 Now, suppose that the Bank of Canada increases the mone from the initial level of $3.5 billion to $7 0.50 In order to increase the money supply, the Bank of Canada open-market operations to 0.75 1.00 Use the purple line (diamond symbol) to plot the new mone (MS2).NTITY OF MONEY (Billions of dollars) ph, the equilibrium value of money is , therefore the equilibrium price level is e Bank of Canada increases the money supply from the initial level of $3.5 billion to 1.00 on! 1.33 he money supply, the Bank of Canada can use open-market operations to the public. 2.00 4.00 diamond symbol) to plot the new money supply (MS2).Canada increases the money supply from the initial level of $3.5 billion to $7 billion. supply, the Bank of Canada can use open-market operations to the public. sell bonds to symbol) to plot the new money supply (MS2). buy bonds from of money and price level, the quantity of money supplied is now than the quantity of money demanded. supply will people's demand for goods and services. In the long run, since the economy's ability to as not changed, the prices of goods and services will and the value of money wille Bank of Canada can use open-market operations to the public. greater plot the new money supply (MS2). less and price level, the quantity of money supplied is now than the quantity of money demanded people's demand for goods and services. In the long run, since the economy's ability to ged, the prices of goods and services will and the value of money willincrease the money supply, the Bank of Canada can use open-market operations to urple line (diamond symbol) to increase w money supply (MS.). reduce ial equilibrium value of money evel, the quantity of money supplied is now than t nsion in the money supply will people's demand for goods and services. In the long run, sil oods and services has not changed, the prices of goods and services will and the value of morlot the new money supply (MS2). rise nd price level, the quantity of money sup now than the quantity of m fall people's demand for goods vices. In the long run, since the economy ged, the prices of goods and services will and the value of money willBank of Canada can use open-market operations to the public. t the new money supply (MS2). rise price level, the quantity of money supplied is now than the quan honey de fall people's demand for goods and services. In the long run, since the 's ability d, the prices of goods and services will and the value of money will