Why is the money supply curve vertical?
Understand the Problem
The question is asking about the characteristics of the money supply curve in economics, specifically why it is represented as vertical. This indicates that the money supply is fixed by the central bank and does not change with interest rates in the short term.
Answer
The money supply curve is vertical because it does not depend on the interest rate but is controlled solely by the central bank.
The final answer is that the money supply curve is vertical because it does not depend on the interest rate but is controlled solely by the central bank.
Answer for screen readers
The final answer is that the money supply curve is vertical because it does not depend on the interest rate but is controlled solely by the central bank.
More Information
The vertical money supply curve indicates that the supply of money is fixed by the central bank and is not influenced by market interest rates.
Tips
Students often mistakenly think the money supply varies with interest rates; however, central banks directly control the money supply regardless of market rates.
Sources
- The Money Market - Khan Academy - pl.khanacademy.org
- Why is the money supply curve vertical? - Chegg Homework - chegg.com
- 25.2 Demand, Supply, and Equilibrium in the Money Market - Open Textbook Library - open.lib.umn.edu
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