The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is explained by the

Question

a. velocity concept.
b. classical dichotomy.
c. Mankiw effect.
d. Fisher effect.

Answer 1

The correct answer is:

b. classical dichotomy.

The classical dichotomy is the economic theory that suggests there is a separation between real variables (like output and employment) and nominal variables (like money supply and price levels), indicating that changes in the money supply primarily affect nominal variables rather than real variables in the long run.