Romer and Romer found evidence that money is not neutral because
A)in several episodes, such as 1979-1982, changes in monetary policy led to recessions.
B)they found that inflation was highly correlated with the rate of growth of the money supply.
C)if money were neutral, no one would care what the Fed does.
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

Romer and Romer found evidence that changes in monetary policy led to recessions in several episodes, such as 1979-1982, indicating that money is not neutral. This supports choice A. Choice B is not accurate as inflation being highly correlated with the rate of growth of the money supply does not necessarily prove that money is not neutral. Choice C is also not accurate as the fact that people care about the Fed's actions does not prove or disprove whether money is neutral. Choice D is not accurate as Romer and Romer found that changes in monetary policy preceded every recession, but this does not necessarily prove that only monetary changes contribute to business cycles.

Romer and Romer Found Evidence That Money Is Not Neutral