Compared to the baseline, the long-run effect of a monetary policy change to reduce the rate of inflation is for there to be
A)an increase in investment and net exports along with a decrease in consumption.
B)an increase in consumption, a decrease in investment, and no change in net exports.
C)an increase in consumption and net exports and a decrease in investment.
D)no change in consumption, investment, and net exports.
E)no change in consumption and investment, but a decrease in net exports.

Question

Quizplus · Accepted Answer

In the long run, a monetary policy change to reduce inflation typically leads to a new equilibrium without changing the fundamental levels of consumption, investment, and net exports. This is because in the long run, prices and wages adjust to the policy change, neutralizing its effect on real variables.

Compared to the Baseline, the Long-Run Effect of a Monetary