Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model in:
A)both the short run and the long run.
B)neither the short run nor the long run.
C)the short run but not in the long run.
D)the long run but not in the short run.

Question

Quizplus · Accepted Answer

Monetary neutrality refers to the idea that changes in the money supply only affect nominal variables and not real variables in the long run. In the short run, changes in the money supply can affect real output and employment, but in the long run, these effects dissipate, and only price levels are affected.

Monetary Neutrality Is a Characteristic of the Aggregate Demand-Aggregate Supply