Question

The classical dichotomy refers to the separation of

a. prices and nominal interest rates.
b. taxes and government spending.
c. real and nominal variables.
d. decisions made by the public and decisions made by the government.

Answer 1

c

Step-by-step explanation:

The classical dichotomy states that real variables e.g. employment are dependent of monetary variables or nominal variables and so they can be analysed separately. According to this theory, the primary function of money is to enhance the efficient production and exchange of goods and services. According to the theory, an economy exhibits classical dichotomy if real variables can be analysed separately from nominal variables