Neutrality of Money

 Money neutrality is the basic principle of economics, which suggests that the economic activities will only reflect the concepts of the nominal varia—prices, wages, and the value of the money—without affecting the real variables such as productivity, employment, and the GDP of the country. As per this hypothesis, an increase in the money supply brings about an increase in the price levels in proportion, but the real economic factors remain the same in the long run. This point of view holds a central position in the classical economics theory, which says that policies of up and down cannot influence the structures or growth of the real economy. The Money market will naturally be able to cultivate changes in the money supply which will achieve equilibrium without influencing real production or consumption systems. In the sense of, while the money can resist the inflation, it cannot reach up to the real variables that determine the overall health and productivity of the economy in the long term. This theorem underlies the separation of nominal and real economic variables and points out the restricted function of the monetary policy in the sustainable development of the economy.