Assuming money neutrality in the classical model,a 10% increase in the nominal money supply would cause
A)a 10% increase in the real money supply.
B)a 10% decrease in the real money supply.
C)no change in the real money supply.
D)a less-than-10% change in the price level due to a shift in the aggregate supply curve.

Question

Quizplus · Accepted Answer

According to the classical model, money neutrality implies that changes in the nominal money supply do not affect real variables, such as output and employment, in the long run, but only affect prices. Therefore, a 10% increase in the nominal money supply would cause a proportional increase in the price level, leaving the real money supply unchanged.

Assuming Money Neutrality in the Classical Model,a 10% Increase in the Nominal