According to the classical dichotomy, when the money supply doubles, what also doubles?
A) the real prices
B) the nominal interest rate
C) the real GDP
D) the nominal GDP

Question

Quizplus · Accepted Answer

According to the classical dichotomy, in the long run, changes in the money supply only affect nominal variables, such as the nominal GDP, nominal wages, and nominal interest rates, but do not affect real variables, such as the real GDP or real interest rates. Therefore, when the money supply doubles, the nominal GDP will also double, but not the real GDP.

According to the Classical Dichotomy, When the Money Supply Doubles