Asked by Prince Osman on Jul 19, 2024
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According to the classical dichotomy and money neutrality, a doubling of the money supply, holding all else constant, causes prices to _____ and real GDP to _____.
Classical Dichotomy
The theoretical separation of real and nominal variables in classical economics, implying that economic variables can be distinctively divided into those that are related to quantity and those related to price.
Money Neutrality
The concept that changes in the money supply only affect nominal variables in the economy, such as prices, wages, and exchange rates, but not real variables like employment or real GDP.
Money Supply
The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation within an economy at a specific time.
- Comprehend the concept of classical dichotomy and distinguish between real and nominal variables.
- Comprehend the principle of money neutrality and its significance to economic indicators over an extended period.
Verified Answer
Learning Objectives
- Comprehend the concept of classical dichotomy and distinguish between real and nominal variables.
- Comprehend the principle of money neutrality and its significance to economic indicators over an extended period.
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