Question

With the value of money on the vertical axis, the money supply curve is

Select one:
a. upward sloping because people supply a larger quantity of money when the value of money increases.
b. downward sloping because people supply a larger quantity of money when the value of money decreases.
c. horizontal because we assume the central bank controls the money supply.
d. vertical because we assume the central bank controls the money supply.

Answer 1

The money supply curve is vertical because we assume the central bank controls the money supply.

Step-by-step explanation:

The correct answer is d. vertical because we assume the central bank controls the money supply.

The money supply curve represents the relationship between the quantity of money supplied and the value of money.

In this case, if the central bank controls the money supply, the vertical position of the curve indicates that the quantity of money supplied remains constant regardless of changes in the value of money.

For example, if the value of money decreases, people may demand more money to purchase goods and services.

However, the central bank can counteract this increase in demand by reducing the money supply, keeping the quantity of money supplied constant, resulting in a vertical money supply curve.