Money neutrality states that

Question

Quizplus · Accepted Answer

Money neutrality is the idea that changes in the nominal money supply do not affect real variables in the long run, such as output, employment, or real interest rates. In other words, changes in the quantity of money only affect nominal aggregates, such as prices and inflation, but not the real economy. This proposition is a key premise of classical macroeconomic theory and the quantity theory of money. Therefore, option B is the correct answer, as it captures the essence of money neutrality. Options A, C, and D are incorrect, as they do not fully represent the concept of money neutrality.

Money Neutrality States That