Question

The idea that the money supply does not affect real economic variables is called:________

a) adaptive expectations theory.
b) monetary neutrality.
c) the Phillips curve.
d) contractionary monetary policy.
e) expansionary monetary policy.

Answer 1

The correct answer is letter "B": monetary neutrality.

Step-by-step explanation:

Austrian economist Friedrich A. Hayek (1899-1992) referred to monetary neutrality as a theory that states the changes in the money supply do not affect the prices of goods, services, wages but no the economy as a whole. According to Hayek, printing more money could increase the demand affecting some economic variables (such as the mentioned above), but in the long run, it does not have a relevant impact.