Question

Explain the meaning of monetary neutrality and illustrate graphically that there is monetary neutrality in the long run in the aggregate demand–aggregate supply model. Be sure to label:

i. the axes

ii. the curves

iii. the initial equilibrium values

iv. the direction to which the curves shift

v. the short-run equilibrium values

vi. the long-run equilibrium values.

Explain in words what your graph illustrates.

Answer 1