What is implied by the "long-run neutrality of money"?

Question

Quizplus · Accepted Answer

The long-run neutrality of money implies that in the long run, changes to the money supply will not affect the economy's potential output or the natural rate of unemployment (represented by Y* in the question). However, in the short run, changes in the money supply can affect real GDP and the price level. The economy's adjustment process brings production (and employment) back to the potential level in the long run. Option A is incorrect because changes in the money supply can affect real GDP and the price level in the short run. Option B is incorrect because changes in the money supply can affect real GDP, as stated in option A. Option D is incorrect because the level of potential output is determined by factors like technology, capital, and labor, not by the money supply. Finally, option E is incorrect because the demand for money adjusts in the short run, but in the long run, it reverts to its original level, and the price level adjusts instead.

What Is Implied by the "Long-Run Neutrality of Money