In the demand and supply model of the money market, the
i. supply of money curve is a vertical straight line.
ii. supply of money is the quantity that must be held by households and firms.
iii. quantity of money is determined by the Reserve Bank's actions.

Question

Quizplus · Accepted Answer

The supply of money curve is vertical because it is set by the central bank and does not change with the interest rate (i). The supply of money is indeed the quantity that must be held by households and firms, as it represents the total amount of money in circulation that they use (ii). Finally, the quantity of money is determined by the central bank's (such as the Reserve Bank) actions, such as through open market operations or setting reserve requirements (iii).

In the Demand and Supply Model of the Money Market