In the long run,a change in the money supply does not affect the natural rate of unemployment because:
A)the aggregate demand curve is vertical.
B)the aggregate demand curve is downward sloping.
C)the long-run aggregate supply curve is vertical.
D)the long-run aggregate supply curve is upward sloping.
E)the long-run aggregate supply curve is horizontal.

Question

Quizplus · Accepted Answer

According to the classical view of the economy, the natural rate of unemployment is determined by factors such as demographics, technology, and institutions. Therefore, changes in the money supply, which affect aggregate demand, do not have a long-term impact on the natural rate of unemployment. In the long run, the economy will adjust to changes in aggregate demand such that it reaches the level of output determined by the long-run aggregate supply curve, which is vertical. This implies that changes in the money supply will only have a temporary impact on employment and output, and cannot permanently alter the natural rate of unemployment.

In the Long Run,a Change in the Money Supply Does