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

Question

Quizplus · Accepted Answer

If an increase in money supply leads to a proportionate increase in prices with no effect on real variables (such as output, employment), we say that money is neutral. This is because the increase in the money supply affects only nominal variables, such as prices, but has no impact on real variables. The Fisher relationship holds when there is a positive correlation between the inflation rate and nominal interest rates, which is not necessarily the case here. Money being a medium of exchange is a general characteristic of money. Money being superneutral refers to a situation where changes in the money supply have no impact on either real or nominal variables, which is not the case here.

If an Increase in the Level of Money Supply Leads