The economic response to the overnight reduction in the French money supply by 20 percent in 1724:
A) confirmed the neutrality of money because no real variables were affected by this nominal change.
B) confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level.
C) confirmed the short-run neutrality of money because prices and wage did not adjust immediately.
D) contradicted Okun's law because decreases in output were not associated with increases in unemployment.

Question

Quizplus · Accepted Answer

The short-run neutrality of money suggests that nominal changes in the money supply do not affect real variables such as output, employment, or growth in the short run. The fact that prices and wages did not adjust immediately in response to the 20 percent reduction in the French money supply suggests that the economy confirmed the short-run neutrality of money. It is important to note that this does not imply that money is neutral in the long run or that changes in the money supply do not have any impact on the economy over time.

The Economic Response to the Overnight Reduction in the French