When Do Most Economists Believe the Principle of Monetary Neutrality

question 93

Multiple Choice

When do most economists believe the principle of monetary neutrality can be relevant?

• A) in both the short run and the long run
• B) in neither the short run nor the long run
• C) mostly in the short run
• D) mostly in the long run

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Definitions:

Potential Output

Potential output refers to the total amount of goods and services an economy can produce when it is operating at full capacity and efficiency, without causing inflation.

Long-run Equilibrium

A state in which all inputs and outputs in an economy are fully adjusted and there is no tendency for change.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing to sell at a given overall price level, across all existing price levels.

Long-run Aggregate Supply

The total supply of goods and services that an economy can produce when resources are fully employed at their most efficient levels, without inflation.