A classical dichotomy refers to the fact that
A) the real variables in the model are determined independently of the money market.
B) the real variables are jointly determined depending on what happens in the money market.
C) real and nominal variables are often different.
D) the real interest rate differs from the nominal interest rate.
E) classical theory predicts negative effects of high inflation.

Question

Quizplus · Accepted Answer

The classical dichotomy refers to the separation of real and nominal variables in the classical economic model, where real variables (such as quantities of goods and services produced in the economy) are determined independently of the money market. Nominal variables (such as prices and wages) are determined by the supply and demand in the money market.

A Classical Dichotomy Refers to the Fact That