Understanding the Money Market Graph

Which of the following is included in the narrowest definition of money, known as M1?

• Traveler's checks

• Bonds

• Real estate

• Stocks

What is the primary reason people hold money for transaction purposes?

• To buy real estate

• To save for retirement

• To purchase goods and services

• To invest in stocks

How does a decrease in interest rates affect the quantity of money demanded?

• It has no effect on the quantity demanded

• It decreases the quantity demanded

• It increases the quantity demanded

• It causes the demand curve to become vertical

What is the role of a country's central bank in the money supply?

• To control the money supply

• To set interest rates directly

• To regulate stock markets

• To manage real estate prices

Which monetary policy is used to combat inflation by decreasing the money supply?

• Contractionary monetary policy

• Expansionary monetary policy

• Supply-side policy

• Fiscal policy