Question

the principle of monetary neutrality implies that an increase in the money supply will increase group of answer choices real gdp and the price level. real gdp, but not the price level. the price level, but not real gdp. neither the price level nor real gdp.

Answer 1

The principle of monetary neutrality suggests that changes in the money supply will increase the price level but not real GDP in the long run, according to the neoclassical view of economics. The correct option of choice is the price level, but not real gdp.

Step-by-step explanation:

The principle of monetary neutrality implies that a change in the money supply does not affect real economic variables like real GDP in the long run. This concept is rooted in the neoclassical view, which posits that changes in monetary policy only affect the price level and not the level of output in the economy.

According to the neoclassical model, an expansionary monetary policy increases the aggregate demand from AD to AD₁, leading to an inflationary increase in price levels from Po to P₁, but in the long term, this does not have an effect on real GDP or the unemployment rate.