The monetarist assumption that monetary policy cannot change long-run equilibrium income is based on the idea that:
A)the long-run aggregate supply curve is horizontal.
B)the long-run Phillips curve is vertical.
C)the price level in the long run is fixed.
D)the aggregate demand curve cannot shift.
E)the long-run Phillips curve is upward-sloping.

Question

Quizplus · Accepted Answer

The monetarist assumption is based on the idea that the long-run Phillips curve is vertical, meaning that there is no trade-off between inflation and unemployment in the long run. Therefore, monetary policy cannot permanently affect the level of output or employment in the long run. This assumption is based on the idea that factors such as technology, capital stock, and labor force cannot be permanently altered by changes in monetary policy.

The Monetarist Assumption That Monetary Policy Cannot Change Long-Run Equilibrium