While price misperceptions can cause an increase in labour supply and GDP in the short-run, in the long run:
A)money is no longer neutral in the model.
B)money negatively impacts real GDP.
C)labour supply returns to its initial position.
D)all of the above.

Question

Quizplus · Accepted Answer

In the long run, price misperceptions are corrected, and the labor supply returns to its initial position. This is because people eventually realize that their perceived increase in wage is not actually due to an increase in the market wage rate. Therefore, there is no sustained increase in overall labor supply or GDP. Money remains neutral in the long run, meaning it does not impact real variables such as GDP.

While Price Misperceptions Can Cause an Increase in Labour Supply