Now consider the relationship between the price level and the quantity of money

Question

Now consider the relationship between the price level and the quantity of money that people demand. 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.

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( 1.00or 1.33or 2.00 or 4.00)

In order to reduce the money supply, the Fed can use open-market operations to ( sell bonds to or buy bonds from) public

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 contraction 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).

Explanation / Answer

value of money

i 1

ii 0.75

iii 0.5

iv 0.25

v lower

vi lower

vii 0.5

vii 2

viii sell bonds

ix low

x reduce

xi rise

xii fall

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