Friedman and Schwarz argue that money is not neutral because
A)theoretical models of the economy don't show monetary neutrality.
B)money is a leading, procyclical variable.
C)they found several historical incidents in which changes in the money supply were not responses to macroeconomic conditions, and output moved in the same direction as money.
D)they found no evidence that productivity changes or changes in government spending contributed to business cycles; only monetary changes preceded every recession.

Question

Quizplus · Accepted Answer

Friedman and Schwartz found historical incidents where changes in the money supply were not related to macroeconomic conditions (such as changes in productivity or government spending), yet the output moved in the same direction as money, suggesting that money is not neutral. They did not base their argument on the lack of theoretical models showing monetary neutrality or the idea that only monetary changes precede every recession. Money being a leading, procyclical variable also does not necessarily mean it is not neutral.

Friedman and Schwarz Argue That Money Is Not Neutral Because