Monetary policy is most effective when the demand curve for money is: A. horizontal B. vertical...
Question:
Monetary policy is most effective when the demand curve for money is:
A. horizontal
B. vertical
C. upward sloping
D. downward sloping
Demand for Money:
A demand curve for money is ideally downward sloping. If we plot money demand against interest rates, demand for money decreases with increases in interest rates and vice versa. This is because money inherently earns zero interest rates if we keep it in our wallets or pockets. If interest rates in alternative investments are increasing, this will motivate us to keep our money in these investments instead to earn high. As a consequence, we reduce our money holdings, thus decreasing demand for money.
Answer and Explanation: 1
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View this answerAnswer: D. downward sloping
Explanation: A monetary policy controls the supply curve for money (in other words, the 'money supply'). Its...
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Money Demand and Interest Rates: Economics of Demand
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Chapter 11 / Lesson 9
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Money, and the demand for it, are different from both income and wealth. Learn about the economics of the demand for money, the factors that can cause demand to change, the motivators for holding money, and how money demand affects interest rates.
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