The neutrality of money implies:
A)one time changes in real variables do not affect money demand.
B)one time changes in the money supply do not affect real variables.
C)one time changes in nominal variables do not affect money demand.
D)one time changes in the money supply do not affect nominal variables.

Question

Quizplus · Accepted Answer

The neutrality of money, also known as the classical dichotomy, implies that changes in the money supply only affect nominal variables such as prices and wages, while real variables such as output and employment are determined by fundamental factors such as technology and resources. Therefore, one time changes in the money supply do not affect real variables.

The Neutrality of Money Implies