When Economists State That "Money Is Neutral," They Mean That

question 45

Multiple Choice

When economists state that "money is neutral," they mean that the:

• A) overall price level has no effect on consumers;only relative prices do.
• B) overall price level has no effect on people's inflation expectations.
• C) money supply does not affect inflation or nominal GDP.
• D) money supply does not affect real GDP or unemployment.

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Definitions:

Equilibrium Interest Rate

The interest rate at which the quantity of money demanded equals the quantity of money supplied.

Nominal Interest Rate

The rate of interest before adjustments for inflation, representing the face value of interest payments.

Inflation-adjusted Value

The value of money after accounting for changes in price level over time, adjusting figures to reflect current purchasing power.

Equilibrium Interest Rate

The interest rate at which the demand for money in an economy equals the supply of money, establishing a state of balance in the financial markets.