lets get this straight guys!! the demand of money is transaction demand and asset demand…and the reason why people demand money is because they prefer having a liquid asset rather than having stocks, bonds or real estate…So when interest rate is high…the opportunity cost of having money in your pocket or cheque account is very high, you won’t want to hold a lot of money but when the interest falls it won’t be a big deal to have a lot of money in your pocket or cheque account…and that way the demand of money increases…The curve between the two can shift…for example when there is an increase in price level…they will be an increase in demand for money because people need more money for more transactions…another thing is income…when income increases the demand for money increase…even technology…The supply of money will be vertical if the economy is not in a recession…When the supply of money is vertical…in a form of a graph…it does not show a recession or full employment…instead it is used to show the idea of monetary policy…this is when the FED or any central bank decreases or increases the money supply to affect the interest rates to speed up or slow down the economy.
Remember Expansionary monetary policy is when the FED or any central bank increases the money supply which will decrease the interest rates, increase investment and increase aggregate demand.
Contractionary monetary policy is designed to fight inflation, this is when the FED would decrease the supply of money, increase interest rates, decrease investment and decrease aggregate demand