Monetary Policy (IB)

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Which statement explains why the supply of money is vertical at Q1 quantity of money? (Pick 2)

• At any point in time, the supply of money is fixed by the central bank

• There is an inverse relationship between the money supply anf the level of interest rates

• The supply of money is independent of the level of interest rates in an economy

• Excess demand and supply is restored to its equilibrium at r(e).

Excess demand for money would exist an an interest rate of ........, shown by distance .........

• r1 and Q3-Q1

• r2 and 0-Q3

• r1 and Q1-Q2

• r1 and Q3-Q2

At an interest rate of r2

• More money is available than people wish to hold

• Less money is available than people wish to hold

• Inflation will set in

• There is excess demand for moeny

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