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17 June, 00:04

Which of the following best describes a fundamental assumption when monetary policy is used to influence the economy?

A. Financial markets are efficient.

B. Money is not neutral in the short run.

C. Official rates do not affect exchange rates.

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  1. 17 June, 00:30
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    Answer: Option B

    Explanation: In simple words, money neutrality refers to the theory that states change in the stock of money will only result in change in nominal variables such as prices, wages etc and will have no impact on real variables such as employment, real GDP etc.

    As we know that monetary policy is implemented usually in situation of inflation and deflation. Thus, it will be no use to implement it to position macroeconomic factors such as employment etc if the money is neutral in short run.
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Home » Business » Which of the following best describes a fundamental assumption when monetary policy is used to influence the economy? A. Financial markets are efficient. B. Money is not neutral in the short run. C. Official rates do not affect exchange rates.
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