the inflation rate, lead to a decline in the real return on narrowly defined (zero-nominal-interest-bearing) money. Therefore, people choose to re-allocate their asset holdings away from money (that is, there is a decrease in real money demand) and into real assets such as goods inventories or even productive assets. The shift in money demand can affect the supply of loanable funds, and the combined changes in the nominal interest rate and the inflation rate may leave real interest rates changed from previously. If so, real expenditure on physical capital and durable consumer goods can be affected. See also Real versus nominal value (economics) Money illusion Veil of money Classical dichotomy Quantity theory of money Notes References Don Patinkin (1987). "Neutrality of money," The New Palgrave: A Dictionary of Economics, v. 3, pp. 639–44. Reprinted in John Eatwell et al. (1989), Money: The New Palgrave, p p. 273-- 287. Friedrich Hayek (1931) Prices and Production. London: G. Routledge & Sons. Friedrich Hayek (1933 in German). "On 'Neutral Money'," in F. A. Hayek. Money, Capital, and Fluctuations: Early Essays, edited by Roy McCloughry, Chicago, University of Chicago Press, 1984. David Laidler (1992). "Hayek on Neutral Money and the Cycle," UWO Department of Economics Working Papers #9206. Roger Garrison & Israel Kirzner. (1987). "Friedrich August von Hayek," John Eatwell, Murray Milgate, and Peter Newman, eds. The New Palgrave: A Dictionary of Economics London: Macmillan Press Ltd., 1987, pp. 609–614 Monetary economics Inflation