If the central bank is targeting the money supply, the money supply is ________ and ________ with respect to the nominal interest rate.

Question

Quizplus · Accepted Answer

When the central bank is targeting the money supply, they are essentially controlling the quantity of money in circulation. Therefore, the money supply is whatever level is dictated by the central bank. Additionally, the central bank can manipulate the nominal interest rate by adjusting the money supply, so the relationship between the two variables is vertical.

If the Central Bank Is Targeting the Money Supply, the Money