The aggregate demand and aggregate supply model implies monetary neutrality
A)only in the short run.
B)only in the long run.
C)in both the short run and the long run.
D)in neither the short run nor long run.

Question

Quizplus · Accepted Answer

The aggregate demand and aggregate supply model implies monetary neutrality in the long run. In the long run, the economy adjusts fully to changes in the money supply, and the price level adjusts to bring the aggregate demand and aggregate supply into equilibrium. Therefore, changes in the money supply do not affect real variables such as output, employment, or growth. However, in the short run, changes in the money supply can have real effects on output and employment through changes in the interest rate, which affects investment and consumption decisions.

The Aggregate Demand and Aggregate Supply Model Implies Monetary Neutrality