According to the theory of monetary neutrality,in the long run,
A) monetary policy is always more effective than fiscal policy.
B) fiscal policy is always more effective than monetary policy.
C) expansionary monetary policy is more effective than contractionary monetary policy.
D) contractionary monetary policy is more effective than expansionary monetary policy.
E) there is a lack of real economic effects from monetary policy.

Question

Quizplus · Accepted Answer

According to the theory of monetary neutrality, changes in the money supply ultimately only affect nominal variables, not real variables, in the long run. This means that while monetary policy may have short-term effects on things like inflation and interest rates, it will not have any long-term impact on real economic variables like output and employment. Therefore, there is a lack of real economic effects from monetary policy in the long run.

According to the Theory of Monetary Neutrality,in the Long Run