In the money market model, the money supply curve is drawn vertical to show that the central bank chooses the quantity of money available.

This diagram shows the standard money market equilibrium: a vertical money supply curve (policy-set quantity) and a downward-sloping money demand curve. The nominal interest rate adjusts until money demand equals the fixed money supply, which is why changes in $i$ do not move the supply curve in this model. Source

The nominal interest rate adjusts to reconcile that fixed quantity with money demand.

Core idea: the central bank targets quantity, not price

In AP Macroeconomics, the money supply ($M^s$) is treated as a policy-controlled quantity. The key assumption is that the central bank can set the quantity of money in the economy (through control of bank reserves and currency) regardless of the current nominal interest rate ($i$).

Because $M^s$ is fixed at a chosen level, changes in $i$ do not cause movements along the money supply curve. Instead, $i$ is free to move up or down until the quantity of money demanded equals that fixed quantity supplied.

What “vertical” means on the graph

A vertical money supply curve means:

This figure illustrates a vertical supply of reserves (set by the central bank) facing a downward-sloping demand for reserves. Even as the interest rate environment is indicated by administered rates (and the federal funds rate), the quantity supplied is represented as fixed at a chosen level—mirroring the AP ‘vertical supply’ modelling assumption. Source

• The x-axis quantity of money supplied is fixed at $\bar{M}$

• The y-axis nominal interest rate can change without changing $M^s$

• Only a policy action changes $M^s$, which shifts the vertical line left or right

This is a modelling choice: it isolates the idea that the central bank is the active decision-maker for money creation in the short run.

How the central bank fixes the money supply

The central bank controls the supply of money primarily by controlling the monetary base (also called “high-powered money”), which underpins the broader money supply created by banks.

Even if the nominal interest rate rises, the central bank does not automatically supply more money; it supplies the quantity implied by its chosen monetary base and operating procedures. In the AP money market graph, that policy-determined quantity is shown as a vertical line.

Linking MB to the money supply (why $i$ doesn’t matter for $M^s$ here)

A common way to express the relationship is:

This reinforces the logic of verticality: if the central bank holds $MB$ constant (and the model treats $m$ as given), then $M^s$ is fixed even as the nominal interest rate changes.

Why the nominal interest rate does not shift money supply

The nominal interest rate is the “price” of holding money in the money market model, but it is not the variable that determines how much money exists. In this framework:

• Banks and the public may want to hold more or less money at different interest rates

• That behaviour changes money demand, not money supply

• The central bank supplies the quantity of money consistent with its policy setting

So, when the nominal interest rate changes:

• You do not move along the money supply curve (because it is vertical)

• Instead, you move along money demand to find the quantity demanded at the new interest rate

What can shift the vertical money supply curve

A vertical money supply curve can still shift left or right when the central bank changes the monetary base (or takes actions that change the quantity of money that the banking system can support). In the money market diagram, those policy moves appear as:

• Increase in money supply: vertical line shifts right

• Decrease in money supply: vertical line shifts left

The essential AP takeaway is embedded in the syllabus wording: given the monetary base set by the central bank, money supply is independent of the nominal interest rate—so the supply curve is drawn vertical to show policy control over quantity, while $i$ adjusts to clear the market.