The classical dichotomy refers to the idea that the supply of money
A)is irrelevant for understanding the determinants of nominal and real variables.
B)determines nominal variables,but not real variables.
C)determines real variables,but not nominal variables.
D)is a determinant of both real and nominal variables.

Question

Quizplus · Accepted Answer

The classical dichotomy suggests that the supply of money affects only nominal variables, such as prices and inflation, while real variables, such as output and employment, are determined by factors such as technology and resource availability. Therefore, option B is the correct choice as it states that money supply determines nominal variables but not real variables.

The Classical Dichotomy Refers to the Idea That the Supply