In the simple liquidity-preference model,the money supply curve:
A)is vertical,and moves at the sole discretion of the Fed.
B)is horizontal,and moves at the sole discretion of the Fed.
C)is vertical,and moves when people change their rate of savings.
D)is horizontal,and moves when people change their rate of savings.

Question

Quizplus · Accepted Answer

In the liquidity-preference model, the money supply curve is vertical because the Fed has complete control over the money supply and can set it at any level it chooses. Therefore, the money supply curve does not respond to changes in interest rates or other market factors but is solely determined by the actions of the Fed.

In the Simple Liquidity-Preference Model,the Money Supply Curve