Suppose that a plot of the values of the money supply, M , and nominal GDP for a given country over 40 years shows that these two variables are very closely related. In particular, a plot of their ratio

(nominal GDP/ M ) yields very stable and easy-to-predict values. On the basis of this evidence, would you recommend the monetary authorities of this country conduct monetary policy by focusing mostly on the money supply rather than on setting interest rates?

Explain why.