Neutrality of money refers to
A) a certain percentage change in the money supply has the same percentage change in economic activity.
B) a one-time change in the money supply has a one-time change in economic activity.
C) a one-time change in the money supply affects consumption and investment decisions only.
D) a one-time change in the money supply has no real consequence for the economy.
E) money being a medium of exchange for everyone.

Question

Quizplus · Accepted Answer

Neutrality of money suggests that a one-time change in the money supply has no real long-term consequence for the economy. In other words, changes in the money supply only affect nominal values such as prices and wages, but not real economic variables such as output, employment, and productivity. This is because, in the long run, prices and wages adjust to changes in the money supply, leading to the same level of real economic activity as before. Therefore, choices A, B, and C are incorrect. Choice E refers to the basic function of money, but it is not directly related to the neutrality of money.

Neutrality of Money Refers to