If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that
A)the Fisher relationship holds.
B)money demand is neutral.
C)money is superneutral.
D)money is neutral.
E)money is the most preferred store of value.

Question

Quizplus · Accepted Answer

If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that money is neutral. This means that the increase in the money supply does not affect the overall output or employment in the economy, and only leads to an increase in the general price level. Option A refers to the Fisher effect, which describes the relationship between the nominal interest rate, the real interest rate, and the inflation rate. Option B and C are related to the idea of monetary neutrality, but do not fully capture the concept of a proportionate increase in prices with no effect on real variables. Option E refers to the idea of money as a store of value, which is not relevant to this particular scenario.

If an Increase in the Level of the Money Supply