Why do many economists believe that changes in the Money supply affect the economy in the short run but not in the long run?
This is because of neutrality of money.
In the long-run, money can only impact on price level and wages but it has no impact on the output level or economic structure as a whole. In the short-run, money can impact on output level because a sudden increase in money supply increases purchasing power of consumers but that can’t be matched with increasing supply of goods because of limited resources, causing inflationary gap; this thing adjusted in the long-run, since there is no limit of resources (all factors become variable) – therefore, there is no effect in the long-run.
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