Monetary neutrality, the irrelevance of the money supply in determining values of _____ variables, is generally thought to be a property of the economy in the long run.

Question

Quizplus · Accepted Answer

Monetary neutrality means that changes in the money supply do not have any long-term impact on real variables, such as real GDP, employment, or productivity. Therefore, it only affects nominal variables, such as prices and nominal GDP. In the long run, these nominal variables adjust to changes in the money supply, but real variables remain unaffected. Therefore, the best choice is A, which states that only real variables are affected by monetary neutrality.

Monetary Neutrality, the Irrelevance of the Money Supply in Determining