What Does the Principle of Monetary Neutrality Imply

question 190

Multiple Choice

What does the principle of monetary neutrality imply?

• A) An increase in the money supply will increase real GDP and the price level.
• B) An increase in the money supply will increase real GDP, but not the price level.
• C) An increase in the money supply will increase the price level, but not real GDP.
• D) An increase in the money supply will increase neither the price level nor real GDP.

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Definitions:

Portfolio Investment

Investments in a variety of financial assets, such as stocks, bonds, and commodities, to diversify risks.

Direct Investment

Refers to buying and holding a significant amount of interest in a foreign company or investing in a manner that grants control over the operations and management.

Securities

Securities that signify ownership in a company listed on the stock market, a debt owed by a corporation or government entity (bonds), or entitlements to ownership through options.

Exchange Rate

The price of one country's currency expressed in another country's currency; it determines how much one currency is worth in terms of another.