If the economy is in long run equilibrium at full employment, an increase in the money supply will lead to a higher aggregate demand and a higher output level in the long- run.

Question

Quizplus · Accepted Answer

In the long run, changes in the money supply only affect the price level, not output. This is known as the neutrality of money. Therefore, an increase in the money supply will only lead to an increase in the price level and not output.

If the Economy Is in Long Run Equilibrium at Full