a. both the short run and the long run.
b. the short run, but not the long run.
c. the long run, but not the short run.
d. neither the long run nor the short run.
1) According to classical macroeconomic theory, changes in the money supply affect nominal variables, but not real variables. It is referred to as neutrality of money which states that money is neutral in its effects and affect only nominal variables. Hence the answer is option (b).
2) The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is more profitable and employment rises. The rise in price level above the expected level induces firms to produce more to get better revenue. Hence the answer is option (a).
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