The reason why monetary policy is neutral in the long-run is: In the long-run, technological change renders meaningless the money supply In the long-run the SRAS curves-up and becomes vertical Short-run monetary policy increases output but it also increases prices. Therefore, in the long-run wages have to be increased, which shifts the SRAS to the left until equality with the LRAS is restored Short-run monetary policy increases output but it also increases prices. Therefore, in the long-run interest rates have to be increased, which shifts the AD to the left until equality with the LRAS is restored

The reason why monetary policy is neutral in the long-run is: In the long-run, technological change renders meaningless the money supply In the long-run the SRAS curves-up and becomes vertical Short-run monetary policy increases output but it also increases prices. Therefore, in the long-run wages have to be increased, which shifts the SRAS to the left until equality with the LRAS is restored Short-run monetary policy increases output but it also increases prices. Therefore, in the long-run interest rates have to be increased, which shifts the AD to the left until equality with the LRAS is restored

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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