On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes, respectively, the transactions demand for money can be represented by
A) a line parallel to the horizontal axis.
B) a vertical line.
C) a downsloping line or curve from left to right.
D) an upsloping line or curve from left to right.

Question

Quizplus · Accepted Answer

The transactions demand for money is the demand for money to carry out transactions in the economy. This demand is not affected by changes in the interest rate, and therefore, it is represented by a vertical line on the diagram where the interest rate is shown on the vertical axis and the quantity of money demanded is shown on the horizontal axis. The quantity of money demanded for transactions remains constant regardless of the interest rate, which is why the line is vertical.

On a Diagram Where the Interest Rate and the Quantity