The concept of monetary neutrality in the classical model means that an increase in the money supply will increase:
A) real GDP.
B) real interest rates.
C) nominal interest rates.
D) both saving and investment by the same amount.

Question

Quizplus · Accepted Answer

Monetary neutrality in the classical model posits that changes in the money supply only affect nominal variables, not real variables. Therefore, an increase in the money supply would increase nominal interest rates, as it does not directly affect real GDP, real interest rates, or the real amounts of saving and investment.

The Concept of Monetary Neutrality in the Classical Model Means