In economics, neutrality of money occurs whenever a change in the stock of money affects only nominal variables in the economy such as prices, wages and exchange rates. It is an important idea in classical economics and is related to the classical dichotomy. Money neutrality implies that the central bank cannot affect the real economy (eg, the number of jobs, the size of GDP, the amount of investment) by printing money. Any increase in the supply of money would be immediately offset by an equal rise in prices and wages.
Many economists argue that money neutrality is a good approximation for how the economy behaves over long periods of time, but in the short run, consider it likely that money might affect output. One argument is that prices and especially wages are 'sticky', and cannot be adjusted immediately to an unexpected change in the money supply. The New Keynesian research program in particular emphasizes models in which money is not neutral and monetary policy can affect the real economy.
Moneyneutrality implies that the central bank cannot affect the real economy (eg, the number of jobs, the size of GDP, the amount of investment) by printing money.
Many economists argue that moneyneutrality is a good approximation for how the economy behaves over long periods of time, but in the short run, consider it likely that money might affect output.
Superneutrality of money is the inability of changes in the growth rate of the money stock in an economy to affect any variable except the inflation rate.
The erroneous assumption of moneyneutrality is at the root of all endeavors to establish the formula of a so-called equation of exchange.
Money, of course, is a dynamic factor and as such cannot be discussed in terms of static equilibrium.
I have demonstrated that money acts as a dynamic agent and that the assumption that the changes in purchasing power are inversely proportional to the changes in the relation of demand for to the supply of money is fallacious.
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