There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables. What is this idea called?
A)the velocity concept
B)the Fisher effect
C)the classical dichotomy
D)the classical theory of money

Question

Quizplus · Accepted Answer

The idea is called the classical dichotomy, which is the separation of nominal and real variables in classical economics. The classical economists believed that changes in the money supply only affect nominal variables like prices and wages, while real variables like output and employment are determined by non-monetary factors like technology and resources. The classical dichotomy suggests that monetary policy is largely ineffective in influencing real economic activity in the long run.

There Is an Idea That Nominal Variables Are Heavily Influenced