Asked by Jason Fraser on Jul 26, 2024
Verified
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.
Monetary Neutrality
The economic theory that changes in the money supply only affect nominal variables and have no long-term effects on real variables like output.
Real Variables
Economic variables that are measured in physical units or have been adjusted for inflation, emphasizing their true value.
- Explain monetary neutrality and its relevance in the long and short run.
Verified Answer
GS
Gabriella SamperJul 28, 2024
Final Answer :
True
Explanation :
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.
Learning Objectives
- Explain monetary neutrality and its relevance in the long and short run.
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