A theory which states that money has no real effect on how resources are allocated in an economy. So, for instance, a doubling of the stock of money supply caused by central bank policy should have no other effect on the economy except the doubling of the nominal prices of all goods. The concept of monetary neutrality has been criticised for assuming that when the supply of money is increased, the new money percolates into the economy and affects prices evenly. Others have argued that the new money enters the economy at different points and affects prices unevenly, thus distorting resource allocation.
