7. Targeting the money supply or the interest rate The following graph shows an increase in the demand for money from 2013 (MID2013) to 2014 (MID2014) caused by an increase in the price level, The initial equilibrium interest rate in 2013 was 5.009% Now suppose the Bank of Canada chooses not to alter the money supply between 2013 and 2014. On the following graph, use the grey point (star symbol) to illustrate the equilibrium interest rate and quantity of money that would result from this lack of intervention. B.25 Money Supply 6.00 No Intervention 5.75 5.50 New MS Curve NOMINAL INTEREST RATE (Percent) 5.25 5.00 With Intervention 4.75 MD 2014 4 50 MD 2013 4 25 0.9 1.0 1.1 12 1.3 14 1.5 QUANTITY OF MONEY (Trillions of dollars) Suppose the Bank of Canada wants to keep 2014 interest rates at their 2013 level