The concept of monetary neutrality means that changes in the money supply have no real effects on real output in the long run.

Question

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According to the classical monetary theory, changes in the money supply only affect nominal variables such as prices and wages in the long run, but not real variables such as output and employment. This concept is known as monetary neutrality. However, some modern theories suggest that in the short run, changes in the money supply can have real effects on output and employment through various channels, such as the interest rate channel and the wealth effect.

The Concept of Monetary Neutrality Means That Changes in the Money