Sia
Question
Statistics
Posted 7 months ago
Which of the following best describes why the money supply curve is vertical?
Choose 1 answer:
(A) Savers want to supply more money when interest rates are high
B Central banks determine the monetary base independent of the interest rate
(c) Individuals hold less money when interest rates increase
D The central bank responds to increases in the interest rate by increasing the quantity of money supplied
(E) The central bank sets interest rates and changes the quantity of money accordingly
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
Identify the key concept in the question: The money supply curve is vertical
step 2
Understand that the money supply curve being vertical implies that the quantity of money supplied does not change with the interest rate
step 3
Recognize that the central bank controls the monetary base independently of the interest rate
step 4
Match this understanding with the provided answer choices
B
Key Concept
The money supply curve is vertical because the central bank controls the monetary base independently of the interest rate.
Explanation
The central bank sets the monetary base, and this decision is not influenced by changes in the interest rate, leading to a vertical money supply curve.
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