Question

How does Monetary neutrality play a part in advanced economies?

Answer 1

Neutrality of money ,a economic theory states that changes in the money supply only affect nominal variables.it does not have any impact on real variable..so as per this modern version of theory this money can be impacted upon prices and wages but it does not affect output of an economy.

As per this modern version when we talking about short run then it can be say that changes in money supply may affect output or unemployment .but it does not affect in long run.

This theory states that money is neutral factor it does not have real effect on economic equilibrium.This theory states that fundamental nature of the economy can not changes with money printing because realtive price adjust flexiblity and always towards equilibrium.Priniting of more money can not create or destroy machine.so aggreage supply remain constant.