ECO 212
Prof.: A. Nelson
Problem Set # 6
(1) The money supply is fixed at $60billion and the equilibrium value of money 1/P = 1/2. The Federal
Reserve increases the money supply by $20 billion and as a result the new equilibrium price level is 5.
Use the Money Supply-Demand Model (Diagram) to explain clearly how equilibrium is restored in
the model.
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