The money supply curve is vertical if
A)banks and the Bank of Canada jointly determine the money supply.
B)the Bank of Canada is able to completely determine the money supply.
C)banks and households determine the money supply.
D)households and the Bank of Canada jointly determine the money supply.
E)the supply of money increases as the interest rate increases.

Question

Quizplus · Accepted Answer

The money supply curve is vertical if the Bank of Canada is able to completely determine the money supply. This means that changes in the interest rate do not affect the supply of money, as the monetary authority has complete control over it. In reality, the money supply curve is not completely vertical, but more steeply sloped than in the case where banks and households also have a significant influence over the supply of money.

The Money Supply Curve Is Vertical If