The classical dichotomy is:
A)the separation of money and goods markets
B)the theoretical separation of nominal and real variables
C)the separation of the monetary system and production system
D)the separation of goods and services produced today and goods and services produced tomorrow

Question

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The classical dichotomy is the theoretical separation of nominal variables (measured in nominal terms, such as money) and real variables (measured in physical terms, such as goods and quantities of goods). This means that changes in the money supply will only have an effect on nominal variables, and not on real variables.

The Classical Dichotomy Is