According to the classical dichotomy, when the money supply doubles, what also double(s)?
A) employment
B) nominal interest rates
C) real interest rates
D) the price level

Question

Quizplus · Accepted Answer

According to the classical dichotomy, changes in the money supply only affect nominal variables (such as prices and nominal interest rates), while real variables (such as employment and real interest rates) are determined by underlying economic factors such as technology and preferences. Therefore, when the money supply doubles, the price level also doubles, while employment and real interest rates are unaffected.

According to the Classical Dichotomy, When the Money Supply Doubles