Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
A)both the classical dichotomy and the quantity theory of money.
B)the classical dichotomy, but not the quantity theory of money.
C)the quantity theory of money, but not the classical dichotomy.
D)neither the classical dichotomy nor the quantity theory of money.

Question

Quizplus · Accepted Answer

Both the classical dichotomy and the quantity theory of money suggest that changes in nominal variables (like the price level or nominal GDP) are primarily influenced by changes in the money supply and the operation of the monetary system. The classical dichotomy separates real and nominal variables, assuming nominal variables are influenced by the money supply, while the quantity theory directly links money supply changes to price level changes (nominal variable changes).

Changes in Nominal Variables Are Determined Mostly by the Quantity