In the long-run ISLM model and with everything else held constant,an increase in the money supply leaves the level of output and interest rates unchanged,an outcome called
A)interest rate overshooting.
B)long-run money neutrality.
C)long-run crowding out.
D)the long-run Phillips curve.

Question

Quizplus · Accepted Answer

According to the long-run version of the ISLM model, money is neutral in the long run and only affects the price level. This means that an increase in the money supply will not change real output or interest rates, as they are determined by factors such as technology, labor supply, and capital stock. This outcome is called long-run money neutrality. Option A is incorrect because interest rate overshooting refers to a short-run phenomenon where interest rates initially move in the opposite direction of output in response to a shock. Option C is incorrect because crowding out refers to a short-run phenomenon where an increase in government spending leads to a decrease in private investment due to higher interest rates. Option D is incorrect because the long-run Phillips curve relates inflation and unemployment, not the money supply and output.

In the Long-Run ISLM Model and with Everything Else Held