Final answer:
Transactions demand for money is interest inelastic and represented by a vertical line, while asset demand is interest rate sensitive and slopes downward. To determine total money demand, add the quantities of money demanded from both at each interest rate horizontally, resulting in a new total demand curve.
Step-by-step explanation:
To combine the transaction demand and asset demand for money graphically to determine total money demand, you would typically start with two separate curves on the same set of axes. The horizontal axis represents the quantity of money, and the vertical axis represents the interest rate.
The transaction demand for money is generally depicted as a vertical line because it is assumed to be interest inelastic; that is, it does not change with the interest rate. It mainly depends on the level of income and the volume of transactions in the economy.
The asset demand for money, however, is illustrated as a downward sloping line, indicating that as interest rates increase, the opportunity cost of holding money rises, and thus the quantity of money held for asset purposes decreases.
To get the total money demand curve, you simply add the quantities of money demanded for transactions and as an asset at each interest rate horizontally. This results in a new demand curve that represents the total demand for money.