That output, Y_t, and the real interest rate, r_t, do not depend on the central bank's inflation target in long-run equilibrium in the dynamic model of aggregate demand and aggregate supply demonstrates: A) monetary neutrality. B) an impulse response function. C) adaptive expectations. D) Taylor's principle.

Question

Quizplus · Accepted Answer

This statement describes the concept of monetary neutrality, which asserts that in the long run, changes in the money supply do not affect real variables like output and the interest rate. This is because changes in the money supply only affect nominal variables like prices and wages, which adjust over time to restore the economy to its long-run equilibrium. The other options are not relevant to this concept.

That Output, Yt, and the Real Interest Rate, Rt, Do

That Output, Y_t, and the Real Interest Rate, R_t, Do