ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an increase in the money supply does nothing.
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a change in the money supply only affects real variables such as real output.
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a change in the money supply reduces velocity proportionately; therefore there is no effect on either prices or real output.
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a change in the money supply only affects nominal variables such as prices and wages.
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the money supply cannot be changed because it is tied to a commodity such as gold.
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Detailed explanation-1: -Neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real variables, like employment, real GDP, and real consumption.
Detailed explanation-2: -The neutrality of money, also called neutral money, is an economic theory stating that changes in the money supply only affect nominal variables and not real variables.
Detailed explanation-3: -Changes in the money supply affect nominal variables but not real variables. Real output is determined by productivity and factor supplies, and not by the quantity of money. However, the value of nominal variables is determined by and is proportional to the quantity of money.
Detailed explanation-4: -Real variables, such as real GDP and the velocity of money, stay constant. A change in a nominal variable-the money supply-leads to changes in other nominal variables, but real variables do not change.
Detailed explanation-5: -Money neutrality is a concept of monetary economics for which an increase in the supply of money affects only prices, without impacting the real economy.