While price misperceptions can cause an increase in labour supply and GDP in the short-run, in the long run:
A)money is no longer neutral in the model.
B)money does not affect real GDP.
C)labour supply falls by more than its initial increase.
D)all of the above.

Question

Quizplus · Accepted Answer

In the long run, money is neutral, meaning it does not affect real variables like real GDP. This principle underlies the classical dichotomy, where real variables (like labour supply, output, and real GDP) are determined by real factors, not by nominal factors like the money supply.

While Price Misperceptions Can Cause an Increase in Labour Supply