According to the policy irrelevance proposition, monetary policy can affect real variables

Question

Quizplus · Accepted Answer

The policy irrelevance proposition states that in the long run, monetary policy only affects nominal variables such as inflation and nominal interest rates, but not real variables such as output or employment. However, in the short run, monetary policy can affect real variables, but only if the policy was unanticipated. This is because if the policy is fully anticipated, individuals and firms will adjust their behavior in a way that offsets any intended effects of the policy. Therefore, the correct answer is C.

According to the Policy Irrelevance Proposition, Monetary Policy Can Affect