Asked by Shehla Qureshi on May 18, 2024
Verified
Most economists believe the principle of monetary neutrality is
A) relevant to both the short and long run.
B) irrelevant to both the short and long run.
C) mostly relevant to the short run.
D) mostly relevant to the long run.
Monetary Neutrality
The concept that changes in the money supply only affect nominal variables in the economy (such as prices, wages, and exchange rates) in the long term, without affecting real variables (like employment and real GDP).
Long Run
A period in which all factors of production and costs are variable, allowing firms to adjust to new conditions or markets.
- Gain insight into the concept of monetary neutrality and its impact on economic theory and policy development.
Verified Answer
GG
Geetha GanesanMay 22, 2024
Final Answer :
D
Explanation :
The principle of monetary neutrality suggests that changes in the money supply only affect nominal variables (such as prices) and have no effect on real variables (such as output or employment) in the long run. This means that while monetary policy can have short-term impacts on the economy, its effects are neutral in the long term, making option D the correct answer.
Learning Objectives
- Gain insight into the concept of monetary neutrality and its impact on economic theory and policy development.