The long-run neutrality of money implies that

Question

Quizplus · Accepted Answer

The long-run neutrality of money implies that changes in the money supply will only affect the price level in the long run, and that real GDP will return to its potential level (Y*) over time, unaffected by changes in the money supply. Therefore, choice C is the best answer. While changes in the money supply may have short-run effects on real GDP, they will eventually be canceled out as the economy's adjustment process brings Y back to its potential level. Choices A, B, D, and E are incorrect because they do not accurately describe the implications of the long-run neutrality of money.

The Long-Run Neutrality of Money Implies That