In the long-run ISLM model and with everything else held constant, the long-run effect of an expansionary monetary policy is to ________.
A)increase real output and the interest rate
B)not change either real output or the real interest rate
C)increase real output and leave the interest rate unchanged
D)increase the interest rate and leave real output unchanged

Question

Quizplus · Accepted Answer

In the long-run, the expansionary monetary policy does not affect real output, as it only affects the price level. The interest rate also remains unchanged due to the neutrality of money in the long run. Therefore, the correct option is B, as it states that there would be no change in either real output or the real interest rate.

In the Long-Run ISLM Model and with Everything Else Held