Answer to Question #227766 in Macroeconomics for Lucy

Question

The traditional approach to the "supply"of money assumes that there is an independent "supply"curve and that there is no relationship between the supply of money and interest rates. TRUE OR FALSE?

Answer 1

• TRUE

The traditional approach to the money supply is based on the idea that factors that influence money supply are exogenous. This implies that the money supply is controlled by outside determinants and does not rely on influences like the interest rate. Hence, the money supply curve is vertical, showing that the central bank's decision on money supply is independent of the interest rate.