Monetary policy affects employment Group of answer choices in neither the long run nor the short run

Economics May 18, 2021

Monetary policy affects employment

Group of answer choices

in neither the long run nor the short run.

in both the long run and the short run.

only in the long run.

only in the short run.

Expert Solution

Answer: only in the short run

In the long-run all factors of production (like land, labor, capital, and organization) are in the full-employment level. Therefore, a monetary policy (like lowering the interest rates, discount rate, and selling/purchasing bonds) can’t affect employment there.

Since in the short-run, the full-employment level is not yet achieved, an expansionary monetary policy can increase inflation and employment.

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