Answer:
The correct answers are:
Money Supply - Nominal Variable
Price Level - Nominal Variable
Quantity of Goods - Real Variable
Separation of real variables and nominal variables - Classical Dichotomy
Explanation:
The statement in the question is the basis of the quantity theory of money.
The Classical Dichotomy in Economics tells us that real variables (such as GDP and the real interest rate) can be analyzed without taking into account nominal variables (such as the money supply, and the nominal interest rate).
And the quantity theory of money simply tells us the following:
Money Supply * Velocity = Price Level * Real GDP
Velocity is constant, and Real GDP, a real variable, does not depend on the nominal variables of the equation (Money Supply, Velocity, and Price Level), but on the factors of production (labor, capital, and land), therefore, the equation can be written as:
Money Supply = Price Level.
In other words, the price level, or inflation, in the long run, a nominal variable, depends on another nominal variable, the money supply, while real GDP, a real variable, is fixed by real factors of production. This is an example of the classical dichotomy.
