In the liquidity-preference model, the slope of the money supply curve implies that
A)money demand varies directly with the nominal interest rate.
B)money supply varies directly with the nominal interest rate.
C)nominal interest rate has no effect on the money demand.
D)nominal interest rate has no effect on the money supply.

Question

Quizplus · Accepted Answer

In the liquidity-preference model, the money supply curve is vertical, indicating that the money supply is fixed by the central bank and does not change with the nominal interest rate. This means that the nominal interest rate has no effect on the money supply.

In the Liquidity-Preference Model, the Slope of the Money Supply