"With autonomous changes in the policy interest rate,the Federal Reserve cannot determine the long run equilibrium level of the real interest rate or potential output and will only be able to determine inflation." This statement is consistent with ________.
A)the notion that shifts in the MP curve may lead to shifts in the AD and AS curves but the LRAS remains unchanged
B)the notion of long-run independence between nominal and real variables
C)the notion of monetary neutrality
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

This statement is consistent with all of the provided notions. The idea that the Federal Reserve cannot determine the long-run equilibrium level of the real interest rate or potential output but can determine inflation aligns with the concepts of shifts in the monetary policy (MP) curve affecting the aggregate demand (AD) and aggregate supply (AS) curves without changing the long-run aggregate supply (LRAS), the long-run independence between nominal and real variables, and monetary neutrality. These concepts collectively suggest that while monetary policy can influence nominal variables like inflation in the short run, real variables such as the real interest rate and potential output are determined by real factors in the long run, unaffected by monetary policy.

"With Autonomous Changes in the Policy Interest Rate,the Federal Reserve