According to the principle of monetary neutrality, what will a decrease in the money supply NOT change?
A) nominal GDP
B) the price level
C) labour productivity
D) the nominal wage rate

Question

Quizplus · Accepted Answer

The principle of monetary neutrality suggests that changes in the money supply will have no impact on real variables like productivity, technology or labour efficiency. Therefore, a decrease in money supply will not affect labour productivity, making option C the correct answer. However, a decrease in money supply will affect nominal variables like the nominal wage rate (option D) and the price level (option B). Nominal GDP (option A) is also affected by changes in money supply as it is calculated using current market prices.

According to the Principle of Monetary Neutrality, What Will a Decrease