Module Money, Output, and Prices in the Long Run KRUGMAN'S MACROECONOMICS for AP* 32 Margaret Ray and David Anderson.

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Module Money, Output, and Prices in the Long Run KRUGMAN'S MACROECONOMICS for AP* 32 Margaret Ray and David Anderson

What you will learn in this Module : The effects of an inappropriate monetary policy The concept of monetary neutrality and its relationship to the long-term economic effects of monetary policy

Short-Run and Long-Run Effects of an Increase in the Money Supply Short-Run and Long-Run Effects of an Increase in the Money Supply Increases in the money supply initially lead to an increase in output, but in the long run increased nominal wages reduce SRAS and lead only to an increased price level.

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 to raise the aggregate price level by an equal percent Money Neutrality Money Neutrality

Changes in the Money Supply and the Interest Rate in the Long Run

Unnumbered Figure 32.1 International Evidence of Monetary Neutrality Ray and Anderson: Krugman’s Macroeconomics for AP, First Edition Copyright © 2011 by Worth Publishers