Final answer:
The money supply line is vertical in equilibrium price level graphs because it is set by a central authority and is not influenced by the price level. The demand curve for money is downward sloping because lower interest rates increase the quantity of money demanded. The intersection of these curves determines the equilibrium interest rate.
Step-by-step explanation:
The question regards why in economic graphs, specifically when determining equilibrium price levels, the money supply line is vertical and the demand curve is downward sloping.
In these graphs, both the supply and demand curves have the price on the vertical axis and quantity on the horizontal axis, allowing them to intersect on the same graph. The supply curve is often depicted as an upward sloping line, reflecting that higher prices will generally lead to a higher quantity supplied.
The money supply line is vertical because the money supply is typically controlled by a central authority (like a central bank) and is therefore not influenced by changes in the price level.
It is set at a certain level regardless of the interest rate, representing an inelastic supply of money. On the other hand, the demand curve for money is downward sloping, indicating that at lower interest rates, the quantity of money demanded increases, while at higher interest rates, the quantity demanded decreases.
When these two curves intersect, the equilibrium interest rate is determined. This is the rate at which the quantity of money demanded equals the quantity of money supplied.
If we're talking about goods and services, the intersection of the supply and demand curves determines the equilibrium quantity and price, the point where consumers' and producers' plans align, indicating no surplus or deficit in the market.