The quantity theory of money says that changes in ____lead to equivalent changes in ____ but have no effect on ______?
Correct answer: C. nominal money, the price level, output and employment
- A. prices, wages, output and employment
- B. output prices, employment
- C. nominal money, the price level, output and employment
- D. nominal money output prices
Explanation
Under the quantity theory, a proportional increase in nominal money produces a proportional increase in the price level, while real output and employment remain unchanged in the classical long run. This is the monetary-neutrality result.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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