4. Money Supply and Nominal Interest Rate (10 points)

Some say high interest rates are caused by overly tight monetary policy (reduction in money supply);

Some say high interest rates are the result of overly loose money monetary policy (increase in money supply).

Which statement do you agree? Explain your reasoning carefully. Use graphs and models. [hint: consider the situations under both short run and long run; the "interest rate" here refers to "nominal" or "real" interest rate? - define it!]