Chapter 32, Problem 4MCQ

To determine

The correct option regarding the phenomenon of monetary neutrality.

Explanation of Solution

According to the theory of money neutrality, fluctuations in the money supply only have a long-term impact on the level of prices and have no impact on actual factors like production and employment. Therefore, increasing the money supply by the central bank won't result in a rise in long-term output (potential GDP). More money is printed, and as more money chases fewer items, prices for goods, services, and salaries rise.

Thus, from the above we can conclude that the correct option is C.