Note: The answer should be typed.

1. 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. to the following table, rot in the column labeled Value of Money quantity of Honey Demanded Price Level (P) Value of Honey (1/P) (Billions of denare) 5.80 1,00 2-00 Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the. w money required to complete transactions, and the w money people will want to hold in the form of currency or demand deposits. Assume that the Federal Reserve initially fixes the quantity of money supplied at $4 billion Live the prange line (square symbol) to plot the intul 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. Live the orange line (square symbol) to plot the initial money supply (MS ) set by the Fed. Then, referring to the previous table, use the blut connected points (circle symbol) to graph the money demand curve. (7 2 00 Money Demand THE OF MONEY 1.80 QUANTITY OF MONEY (Billions of solar) According to your graph, the equilibrium value of money is .therefore the equilibrium price level is Now, suppose that the Fed reduces the money supply from the initial level of $4 billion to $2 5 billion In order to reduce the money supply, the Fed can use open market operations to the public. Use the purple line (diamond symbol) to plot the new money supply (MS. J. Immediately after the Fed changes the money supply from its initial equisbrium level, the quantity of money supplied is than the quantity of money demanded at the initial equilibrium. This contraction in the money supply well 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