If the money supply function is vertical, any value of the money supply set by the central bank implies a specific value for ______.
A) potential output
B) the interest rate
C) government purchases
D) the budget deficit

Question

Quizplus · Accepted Answer

When the money supply function is vertical, it means that the central bank has set a specific money supply level that does not change with changes in the interest rate. Therefore, any value of the money supply set by the central bank implies a specific value for the interest rate, as the money supply and demand determine the equilibrium interest rate.

If the Money Supply Function Is Vertical, Any Value of the Money