What does the term "monetary neutrality" imply?

The concept of monetary neutrality refers to the idea that changes in the money supply have no lasting effect on real variables in the economy, particularly in the long run. This means that while the money supply can influence nominal variables, such as prices and wages, it does not have a lasting impact on real variables like output, employment, or real GDP.

In the context of the choices provided, the correct option highlights this principle by stating that changes in the money supply do not affect real variables in the long run. The implication is that any changes in the money supply will lead to proportional changes in price levels, thus maintaining the real economy's equilibrium in the long run. In the short run, there may be temporary effects on real variables due to factors like price stickiness or adjustment lags, but these effects are not sustained over time.

Overall, the idea of monetary neutrality is fundamental in understanding how monetary policy operates, particularly the distinction between short-run and long-run impacts on the economy.