When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the money demand function?
A) It slopes upward because at higher prices people want to hold more money.
B) It slopes downward because at higher prices people want to hold more money.
C) It slopes downward because at higher price people want to hold less money.
D) It slopes upward because at higher prices people want to hold less money.

Question

Quizplus · Accepted Answer

As the value of money (or its purchasing power) decreases due to higher prices, people demand more money to maintain their desired level of purchasing power. Therefore, the money demand function slopes downward.

When the Money Market Is Depicted in a Diagram with the Value