Monetary neutrality implies that an increase in the money supply will:
A) increase the price level.
B) increase real interest rates.
C) lower real GDP.
D) lower the unemployment rate.

Question

Quizplus · Accepted Answer

Monetary neutrality implies that changes in the money supply only affect nominal variables like prices and nominal GDP, but have no effect on real variables like real GDP, real interest rates, or the unemployment rate. Therefore, an increase in the money supply will lead to an increase in the price level (Choice A), but will not affect the other variables listed.

Monetary Neutrality Implies That an Increase in the Money Supply