In the liquidity-preference model, the nominal interest rate is represented on the vertical axis and the quantity of money is represented on the horizontal axis.Hence,
A)the money demand curve slopes downward and the money supply curve is vertical.
B)the money demand curve slopes upward and the money supply curve is horizontal.
C)both the money demand and money supply curve slope downward.
D)both the money demand and money supply curve slope upward.

Question

Quizplus · Accepted Answer

In the liquidity-preference model, the money demand curve slopes downward as the quantity of money demanded decreases as the interest rate increases. The money supply curve is represented as vertical because it is determined by the central bank and is not affected by the interest rate. Therefore, the intersection of the money demand and money supply curve determines the equilibrium nominal interest rate.

In the Liquidity-Preference Model, the Nominal Interest Rate Is Represented