ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Furthermore, super neutrality of money is also used, that changes in money supply growth will not cause any changes in real variables in economic unless inflation occurred. Long-run money neutrality hypothesis is mostly based on classical, neoclassic model, or real business cycle theory.

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: -Money is said to be neutral when a once-and-for-all change in the money supply or money demand has no real effects. Money is super-neutral when a change in the growth rate of the money supply (or demand) has no real effect. And money is non-neutral when a change in the supply or demand for money does have real effects.

Detailed explanation-4: -In a sentence, a so-called “neutral” monetary policy, also called the “natural” or “equilibrium” rate, is the federal funds rate rate that neither stimulates (speeds up, like pushing down the gas pedal on a car) nor restrains (slows down, like hitting the brakes) economic growth.

Detailed explanation-5: -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.