Draw a graph of money demand and money supply with the nominal interest rate on the vertical

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Draw a graph of money demand and money supply with the nominal interest rate on the vertical axis and money balances on the horizontal axis. Assume the central bank is following a money growth rule where its sets the growth rate of money supply to zero. Use the graph to illustrate how fluctuations in velocity imply that targeting money growth results in greater volatility of interest rates.

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Money Banking and Financial Markets

ISBN: 978-0078021749

4th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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