The model of aggregate demand and aggregate supply is consistent with short-run monetary ______ and long-run monetary ______.
A) neutrality; neutrality
B) nonneutrality; nonneutrality
C) neutrality; nonneutrality
D) nonneutrality; neutrality

Question

Quizplus · Accepted Answer

In the short-run, monetary nonneutrality can occur due to sticky prices and wages, leading to changes in output and employment levels. However, in the long-run, the economy reaches equilibrium and monetary neutrality prevails, where changes in the money supply only affect nominal variables such as prices and not real variables such as output and employment.

The Model of Aggregate Demand and Aggregate Supply Is Consistent