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AP Economics

Explore the impact of monetary policy shifts on the economy, focusing on long-term outcomes such as price levels and output. Understand monetary neutrality and its role in economic stability. Learn how changes in money supply affect interest rates in the long run.

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AP Economics

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  1. AP Economics Mr. Bernstein Module 32: Money, Output and Prices in the Long Run March 2019

  2. AP EconomicsMr. Bernstein Money, Output and Prices in the Long Run Objectives - Understand each of the following: • The effects of an inappropriate monetary policy • The concept of monetary neutrality and its relationship to the long-term economic effects of monetary policy

  3. AP EconomicsMr. Bernstein Short-Run and Long-Run Effects of Increase in MS • Counter-productive action can destabilize • ie Expansionary Policy when at LR equilibrium • Shifts AD right • Both Y and P rise • Eventually wages rise, SRAS shifts left, and in the long run prices rise but Y does not

  4. AP EconomicsMr. Bernstein Money Neutrality • Changes in Money Supply have no effect on economy • MS increase leads to price increase 1-for-1 • And nothing changes in real terms…

  5. AP EconomicsMr. Bernstein Changes in MS and Interest Rates in the Long Run • Increase in MS causes short-term rates to fall • Also causes prices to rise • …which increases MD (shifts to right)… • …and returns interest rate to its original level

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