In the long run, the classical dichotomy holds that:
A) money is not neutral.
B) there is constant tension between inflation and unemployment.
C) the inflation and unemployment rates are zero.
D) steady-state growth is a constant 2 percent.
E) there is no trade-off between inflation and real GDP.

Question

Quizplus · Accepted Answer

The classical dichotomy refers to the theoretical separation of real and nominal variables in the economy, suggesting that nominal variables (like the money supply) do not affect real variables (like real GDP) in the long run. Therefore, in the long run, changes in the money supply only affect nominal variables (like the price level or inflation) and have no effect on real variables, indicating there is no trade-off between inflation and real GDP.

In the Long Run, the Classical Dichotomy Holds That