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1. Explain, with the aid of a diagram, what happens to the money supply, money demand,...

1. Explain, with the aid of a diagram, what happens to the money supply, money demand, the value of money, and the price level if the Central Bank increases the money supply.

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if the Central Bank increases the money supply it will increase the reserve in the banking system. There will be a pressure on the banking system to reduce the rate of interest because at the current rate of interest there is an excess supply of money. When the rate of interest is decreased, there is an increase in the general price level. Price level and value of money are inversely related which means that increase in the supply of money will decrease the value of money. This is shown in the diagram below

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