The graph illustrates the relationship between the rate of interest and the quantity of money in a money market. The x-axis represents the "Quantity of Money," while the y-axis represents the "Rate of Interest."Key points on the graph:- $ S_{m1}, S_{m2}, S_{m3} $ are variations of the supply of money.- $ D_t $ is the transactions demand for money, located at 125 on the x-axis.- $ D_m $ is the total demand for money, located at 325 on the x-axis.The line slopes downward from a high rate of interest when the quantity of money supplied is low, to a lower rate of interest when the quantity of money supplied is high. Below the graph is a question:**Question:**Refer to the above graph, in which $ D_t $ is the transactions demand for money, $ D_m $ is the total demand for money, and $ S_m $ is the supply of money. The transactions demand for money in this money market is:- ○ $250.- ○ $125.- ○ $175.- ○ $325.

Answer to the question is as follows :Definition for transaction demand for money : It is the amount of money that is demanded for day to day transactions . For example , the producer demands money to pay wages to the labor and also to purchase raw materials for production purposes Similarly ,consumers demand money to buy goods and services as required. The transaction demand for money depends on income (Y) and so higher the income, greater is the transaction demand for money( Dt). But it is independent of the rate of interest ( r) . In the figure , when the quantity of money plotted against the rate of interest , the transaction demand for money (Dt) is a straight line parallel to the axis measuring the interest rate . That means, irrespective of high or low interest rate, the transaction demand for money is constant at $125( as seen from the figure given) . Hence ,the second option is the correct one.

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Refer to the above graph, in which D; is the transactions demand for money, Dm is the total demand for money, and S,m is the supply of money. The transactions demand for money in this money market is: $250. $125. O $175. $325.

Refer to the above graph, in which D; is the transactions demand for money, Dm is the total demand for money, and S,m is the supply of money. The transactions demand for money in this money market is: $250. $125. O $175. $325.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The graph illustrates the relationship between the rate of interest and the quantity of money in a money market. The x-axis represents the "Quantity of Money," while the y-axis represents the "Rate of Interest."

Key points on the graph:

- $ S_{m1}, S_{m2}, S_{m3} $ are variations of the supply of money.
- $ D_t $ is the transactions demand for money, located at 125 on the x-axis.
- $ D_m $ is the total demand for money, located at 325 on the x-axis.

The line slopes downward from a high rate of interest when the quantity of money supplied is low, to a lower rate of interest when the quantity of money supplied is high.

Below the graph is a question:

**Question:**
Refer to the above graph, in which $ D_t $ is the transactions demand for money, $ D_m $ is the total demand for money, and $ S_m $ is the supply of money. The transactions demand for money in this money market is:

- ○ $250.
- ○ $125.
- ○ $175.
- ○ $325.

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