Economics · Macroeconomics

Assertion (A): Neutrality of money implies that a change in money supply affects only nominal variables (prices, wages, exchange rates) and has no effect on real variables (real GDP, real employment, real consumption). Reason (R): In the Classical model, money serves only as a medium of exchange (money as a veil), so any increase in money supply raises prices and wages proportionately, leaving real purchasing power and real variables unchanged.