The characteristic of the classical model that the money supply does not affect real variables is called:
A) the monetary basis.
B) monetary policy.
C) the quantity theory of money.
D) monetary neutrality

Question

Quizplus · Accepted Answer

The characteristic that the money supply does not affect real variables, such as output and employment, is called monetary neutrality. This is a key feature of the classical model, which assumes that markets operate smoothly and adjust quickly to changes in supply and demand. The quantity theory of money is related to this concept, in that it suggests that changes in the money supply will primarily affect prices in the long run, rather than real output. Monetary policy refers to the actions taken by central banks to influence the money supply and interest rates, while the monetary base is the amount of reserves held by banks, which can be used to create money through lending.

The Characteristic of the Classical Model That the Money Supply