Which line in the graph above would best illustrate the transactions demand for money curve?
A) Line 1
B) Line 2
C) Line 3
D) Line 4

Question

Which line in the graph above would best illustrate the transactions demand for money curve?
A) Line 1 
B) Line 2 
C) Line 3 
D) Line 4

Quizplus · Accepted Answer

The transactions demand for money curve represents the demand for money for everyday transactions, such as buying goods and services. This demand is related to the level of income in the economy, and is therefore a function of changes in nominal GDP. The graph represented by Line 2 shows an upward sloping curve, which is consistent with the idea that as income increases, so does the demand for money for transactions purposes. Therefore, Line 2 is the best choice for illustrating the transactions demand for money curve.

Which Line in the Graph Above Would Best Illustrate the Transactions