The irrelevance of monetary changes for real variables is called monetary neutrality. Most economists accept monetary neutrality as a good description of the economy in the long run, but not the short run.

Question

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Monetary neutrality suggests that changes in the money supply only affect nominal variables (like prices) and not real variables (like output or employment) in the long run. In the short run, however, money supply changes can influence real economic activity due to price and wage stickiness, among other factors, leading most economists to accept monetary neutrality only in the long run.

The Irrelevance of Monetary Changes for Real Variables Is Called