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Define and demonstrate with the AD/AS model the concept of money neutrality. Colleg level answers, please...

Define and demonstrate with the AD/AS model the concept of money neutrality.

Colleg level answers, please provide detail explanation- approx 15 mark question

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Answer #1

According to classical economist neutrality of the money refers to the money supply in the economy only affects the nominal variable factors such as price, wages, in short run and real variable factors investment, GDP, employment are not affected because their productivity influenced by the real factors.

According to the classical economist, money serves only as a medium of the exchange hence, changes in the money supply inversely affect the price and wages.

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