The classical dichotomy refers to the separation of

Question

a.

prices and nominal interest rates.
b.

real and nominal variables.
c.

taxes and government spending.
d.

decisions made by the public and decisions made by the government.

Answer 1

The classical dichotomy refers to the separation of:

b. real and nominal variables.

In classical economics, this concept suggests that nominal variables (like money supply and prices) do not affect real variables (like real output and employment) in the long run.