1. Money, Output and Prices in the Long Run
AP Economics
Mr. Bernstein
Module 32:
Money, Output and Prices in the Long Run
March 2017

2. AP Economics Mr. 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 Economics Mr. 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 Economics Mr. 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 Economics Mr. 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