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Module 32: Money, Output, and Prices in the Long Run PowerPoint Presentation
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Module 32: Money, Output, and Prices in the Long Run

Module 32: Money, Output, and Prices in the Long Run

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Module 32: Money, Output, and Prices in the Long Run

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  1. Module 32: Money, Output, and Prices in the Long Run 1

  2. Long-Run Effects of an Increase in the Money Supply • What if a central bank pursues a monetary policy that is not appropriate (i.e. unnecessary)? • In the long run, changes in the quantity of money affect the aggregate price level, but they do not change real aggregate output or the interest rate.

  3. Long-Run Effects of an Increase in the Money Supply • What if a central bank pursues a monetary policy that is not appropriate (i.e. unnecessary)? • In the long run, changes in the quantity of money do not change the interest rate.

  4. Monetary Neutrality • According to concept of monetary neutrality, changes in the money supply have no real effects on the economy. • In the long run, the only effect of an increase in the money supply is a proportional change in the aggregate price level. • Money is neutral in the long run.

  5. Evidence of "Monetary Neutrality"?