On a money demand diagram with the interest rate on the vertical axis,the real money balance demand schedule would be a vertical line under the assumption that
A)a lower interest rate raises the demand for real money.
B)a lower interest rate lowers the demand for real money balances.
C)the interest rate has no effect on the demand for real money balances.
D)balances.
E)a higher real GDP raises the demand for real money balances.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the demand for real money balances is solely determined by real income and prices. The interest rate is not considered to be a factor that influences the demand for real money balances in this theory, so the real money demand schedule would be a vertical line.

On a Money Demand Diagram with the Interest Rate on the Vertical