Suppose that the money supply increases. In the long run, employment increases according to which of the following theories?
A)both the long-run Phillips curve and the aggregate demand and aggregate supply model
B)neither the long-run Phillips curve nor the aggregate demand and aggregate supply model
C)only the long-run Phillips curve
D)only the aggregate demand and aggregate supply model

Question

Quizplus · Accepted Answer

In the long run, changes in the money supply do not affect the level of employment according to both the long-run Phillips curve and the aggregate demand and aggregate supply model. In the long run, the economy reaches its natural rate of unemployment determined by factors such as demographics, technology, and institutions. Changes in the money supply may affect short-run fluctuations in employment, but in the long run, they do not have a permanent effect. Therefore, neither theory predicts that a change in the money supply would cause a permanent change in employment in the long run.

Suppose That the Money Supply Increases