The proposition that changes in money have no real effect on the economy and affect only prices is called:
A) inflation
B) the classical dichotomy
C) the quantity equation
D) the neutrality of money
E) the quantity theory

Question

Quizplus · Accepted Answer

The proposition that changes in money supply have no real effect on the economy and affect only prices is called the neutrality of money. It is the idea that changes in the money supply do not affect real variables, such as output and employment, but only nominal variables, such as prices and inflation. This idea is often associated with classical economists, who believed that markets would adjust quickly and efficiently to changes in the money supply, and that the long-run effects of monetary policy would be limited to changes in prices.

The Proposition That Changes in Money Have No Real Effect