What does the principle of monetary neutrality imply?
A) An increase in the money supply will increase real GDP and the price level.
B) An increase in the money supply will increase real GDP, but not the price level.
C) An increase in the money supply will increase the price level, but not real GDP.
D) An increase in the money supply will increase neither the price level nor real GDP.

Question

Quizplus · Accepted Answer

The principle of monetary neutrality implies that changes in the money supply only affect nominal variables (like the price level) in the long run, but do not have an impact on real variables (like real GDP).

What Does the Principle of Monetary Neutrality Imply