In a graph of a money demand curve, the _____ is plotted on the vertical axis.
A) interest rate on liquid assets such as short-term CDs
B) interest rate on 30-year Treasury bills
C) rate of inflation
D) rate of return in the stock market

Question

Quizplus · Accepted Answer

The interest rate on liquid assets such as short-term CDs is typically plotted on the vertical axis of a money demand curve because it represents the opportunity cost of holding money. As the interest rate on these assets increases, the demand for money decreases because individuals and firms are more likely to hold these assets instead of money. Conversely, as the interest rate on these assets decreases, the demand for money increases because the opportunity cost of holding money decreases.

In a Graph of a Money Demand Curve, the _____