When do most economists believe the principle of monetary neutrality can be relevant?
A) in both the short run and the long run
B) in neither the short run nor the long run
C) mostly in the short run
D) mostly in the long run

Question

Quizplus · Accepted Answer

Most economists believe that the principle of monetary neutrality is relevant mostly in the long run because in the short run, changes in the money supply can affect output, employment, and prices due to sticky prices and wages. However, in the long run, prices and wages are more flexible, so changes in the money supply will only affect nominal variables and not real variables.

When Do Most Economists Believe the Principle of Monetary Neutrality