According to the classical dichotomy theory, when the money supply doubles, what also doubles?
A) the price level
B) the real interest rate
C) the inflation rate
D) the real income

Question

Quizplus · Accepted Answer

According to the classical dichotomy theory, changes in the money supply affect nominal variables such as prices, but not real variables such as real interest rates or real income. Therefore, when the money supply doubles, the price level will also double in the long run.

According to the Classical Dichotomy Theory, When the Money Supply