The classical dichotomy means that:
A)purely nominal variables won't affect real variables in the long run.
B)in the long run, inflation is determined by both output and unemployment.
C)in the short run, output and unemployment are not related.
D)output gaps and unemployment are both zero in the long run.

Question

Quizplus · Accepted Answer

The classical dichotomy refers to the theoretical separation of real variables (such as output and employment) from nominal variables (such as money supply and prices). According to classical economists, changes in nominal variables only have short-term effects on real variables, while the long-run equilibrium is determined solely by real variables. Therefore, purely nominal variables such as changes in the money supply do not affect real variables in the long run.

The Classical Dichotomy Means That