If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables,we say that

Question

Quizplus · Accepted Answer

When an increase in the money supply results in an equal increase in prices, with no effect on real variables such as output or employment, we say that money is neutral. This implies that changes in the money supply have no effect on the real economy in the long run, only on the price level. This is a fundamental concept in classical and neoclassical economic theory. The Fisher relationship refers to the relationship between the nominal and real interest rates, while superneutrality implies that changes in the money supply have no effect on any economic variables, including the price level. choice D is incorrect as it is not related to the given scenario.

If an Increase in the Level of the Money Supply