Which statement best characterizes the effects of monetary policy?
A) Monetary policy is neutral in both the short run and the long run; therefore, it does not affect real variables.
B) Monetary policy is neutral in the long run, but it may have effects on real variables in the short run.
C) Monetary policy has profound effects on real variables in both the short run and the long run.
D) Monetary policy has profound effects on real variables in the long run, but is neutral in the short run.

Question

Quizplus · Accepted Answer

Monetary policy can have short-term effects on real variables such as employment and output, but in the long run, it is primarily neutral and only affects nominal variables like inflation. However, there are some exceptions, such as when monetary policy is used to address financial crises, which can have longer-term effects on the economy.

Which Statement Best Characterizes the Effects of Monetary Policy