The value of money is ultimately determined by the intersection of the money supply, as controlled by the Fed, and money demand, as created by consumers. Figure 1 depicts the money market in a sample economy. The money supply curve is vertical because the Fed sets the amount of money available without consideration for the value of money. The money demand curve slopes downward because as the value of money decreases, consumers are forced to carry more money to make purchases because goods and services cost more money. Similarly, when the value of money is high, consumers demand little money because goods and services can be purchased for low prices. The intersection of the money supply curve and the money demand curve shows both the equilibrium value of money as well as the equilibrium price level. The value of money, as revealed by the money market, is variable. A change in money
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