Answer to Question #155095 in Macroeconomics for Ndzalama

Question

2.3. Explain why monetarists believe that monetary policy affects output and employment in the shortrun but not in the long run. What is the crucial difference between the short run and the long run?​​​​​​​​​​​​(4)

Answer 1

Monetary policy affects output and employment in short run because money supply determines the prices, employment and production in the short term hence affecting the economic output.

The difference between the monetary policy in the short and long run is that in the short run the policy has temporary effects on the real output nd employment while in the long run affects the nominal output and not the real output.