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And finance Allah Shmoop What are the neutrality and super

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neutrality of money All right people your money just doesn't

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care You let your money pick whatever it wants to

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have for breakfast Hey cash stack Waffles or pancakes Yeah

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it doesn't care Timeto unwind in front of the TV

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Well you ask your money Do you wanna watch game

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of thrones or Black mirror Your money shrugs It just

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doesn't care That's the neutrality of money But there's another

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kind of neutrality of money as well Here in an

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economic sense the term neutrality of money means that changes

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in the money supply You know the amount of money

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in the system sloshing around out there doesn't impact the

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rial variables in the economy Stuff like underlying supply and

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demand or the unemployment rate or the amount of output

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in the economy Those things don't get fundamentally changed by

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the amount of cash floating around Well the amount of

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money can affect what's called nominal variables Things like prices

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and wages But it doesn't impact the rial variables So

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it isn't that your money doesn't care about you It's

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that the economy doesn't care about money Wait isn't money

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what the economy is all about We goto work to

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get money right That's the reason we work We spend

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money on everything we need to buy money Is the

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purpose of the economy right Well no not really The

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economy is about Resource is in labor You take stuff

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like a tree or some iron or from the ground

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You add a little human ingenuity and the elbow grease

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and boom You get a house you know or a

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car or a flying pizza delivery drone or something like

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that Well money is just a way to move things

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along efficiently It makes it so that we don't have

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to barter for everything Like say there's not much money

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in the economy not a lot of cash Prices are

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low You can buy a brand new taffy pulling machine

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for one hundred bucks Okay now let's dump a whole

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bunch of extra money into the system Now there's ten

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times as much cash as there was before That's going

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to cause a lot of disruption right Massive inflation It'll

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take some time to adjust but once the economy gets

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used to all that additional cash well everything evens out

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the price you pay for your taffy puller is now

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much higher Numerically it costs a thousand dollars instead of

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one hundred dollars But the basic factors of the economy

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stay the same People want the same amount of taffy

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as they did before Demand is the same You can

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still get the taffy puller you wanted Supply stays the

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same on ly prices changed with the money that was

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added to the system there So that's the neutrality of

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money Nominal prices and nominal wages are influenced by the

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amount of money in the system but the underlying conditions

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remain the same Well that's the theory anyway However not

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everyone agrees with this theory Working in practice One example

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While the United States government is a neutrality of money

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skeptic how do we know Well because if the theory

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is true then the Fed or Federal Reserve can't do

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anything to manage the economy Nothing It does boost long

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term economic growth and it can't do anything to increase

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employment There is also a class of economists who hold

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a middle position They argue that changes in the amount

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of money can have a short term In fact a

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surge of cash will prompt spending in the short term

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Give people a bunch of fat stacks of cash and

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well they'll spend him You know instant demand boost But

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the's economists don't think the effect last too long Eventually

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people get used to the new amounts of cash Prices

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go up The extra money they have doesn't come with

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any additional buying power and it kind of settles into

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a groove there Right things eventually settle into the same

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underlying patterns as they were in before But during the

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transition period there can be a measurable albeit fleeting impact

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So what is super neutrality than money that really doesn't

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care Well the theory of super neutrality says that not

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only does the level of money not matter but the

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rate of supply change doesn't matter either That is add

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money faster added slow It doesn't impact things like output

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or unemployment And as for your money's preference for breakfast

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foods or TV shows while you may never get an

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answer just don't ask whether it prefers D C or

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marvel Your money may never shut up Been there done

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that

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