Question

The long run aggregate supply curve is perfectly vertical to both the RBC and New keynesian models of inflation and economic growth. this implies that

a. inflation and long run supply and positively correlated

b. sthe slope of the LRAS curve is negative

c. there is no relationship between long run growth and inflation

d. all of the possible choices are correct

money neutrality implies that

a. all the possible choices are correct

b. increaes in the money supply have no long run effect on aggregate demand

c. increases in money supply have no effects on long run economic growth

d. increases in the money supply have no effect on inflation in the long run

Answer 1

1) option C is correct because LRAS is vertical implies that now price is totally flexible and it get adjusted for all type of inflation and recession in an economy to come again at potential GDP

2) option C is correct because neutrality of money states that as money supply increases or decreases there is only change in nominal variables and no change in real variables .Economic growth is a real variable therefore money supply has no long run effect on Economic growth