When the demand for money is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis?
A) Quantity of money is on the vertical axis, and interest rate is on the horizontal axis.
B) Interest rate is on the vertical axis, and quantity of money is on the horizontal axis.
C) Price level is on the vertical axis, and quantity of money is on the horizontal axis.
D) Quantity of money is on the vertical axis, and price level is on the horizontal axis.

Question

When the demand for money is shown on a graph, which variable is on the vertical axis and which variable is on the horizontal axis?  
A) Quantity of money is on the vertical axis, and interest rate is on the horizontal axis. 
B) Interest rate is on the vertical axis, and quantity of money is on the horizontal axis. 
C) Price level is on the vertical axis, and quantity of money is on the horizontal axis. 
D) Quantity of money is on the vertical axis, and price level is on the horizontal axis.

Quizplus · Accepted Answer

The demand for money is typically shown as a downward-sloping curve, with the interest rate on the vertical axis and the quantity of money on the horizontal axis. This reflects the inverse relationship between the quantity of money demanded and the interest rate: as interest rates rise, people are more likely to hold onto their money (i.e. demand for money increases), while as interest rates fall, people are more likely to spend or invest their money (i.e. demand for money decreases).

When the Demand for Money Is Shown on a Graph