The notion that nominal variables are heavily influenced by the quantity of money, and that money is largely irrelevant to understanding the determinants of real variables, is called:
A)monetarism
B)the quantity theory
C)the Fisher effect
D)the classical dichotomy

Question

Quizplus · Accepted Answer

The classical dichotomy is the notion that in the long run, nominal variables such as prices and nominal wages are heavily influenced by the quantity of money, while real variables such as output and employment are largely determined by real factors such as technology and resources. This is a fundamental principle of classical economics, which suggests that changes in the money supply have no effect on the real economy in the long run.

The Notion That Nominal Variables Are Heavily Influenced by the Quantity