ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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demand for money is perfectly elastic
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supply of money is perfectly inelastic
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the price axis is labeled real interest rate
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the supply curve is leaning
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Detailed explanation-1: -Notice that the money supply curve is a perfectly inelastic curve, which means that it is independent of the interest rate in the economy. That is because the Fed controls the amount of money supply in the economy.
Detailed explanation-2: -The money market diagram depicts the relationship between the supply of money and the demand for money. The graph includes interest rates, the quantity of money demanded, and the quantity of money supplied. The correlation between the supply and demand of money is evidence of how they influence one another.
Detailed explanation-3: -The money supply doesn’t depend on the interest rate, it only depends on the central bank. Because of this, the money supply curve is vertical at the quantity of the money supply, not upward sloping or downward sloping.
Detailed explanation-4: -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.