Question

Assume the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways?

Answer 1

A money supply go up and be inflationary in nature if the unemployment rate is below the natural rate and thus there will be high rate of unemployment.

What does it implies when the economy is in long run equilibrium?

An economy that is to be in long-run equilibrium will have the real unemployment rate to be equal to that of natural rate of unemployment.

Note that a boast in the money supply will influence unemployment based on the fact that unemployment rate is bigger than the natural rate of unemployment, and thus the rate of inflation is said to be going done.

When the level of output is higher than  employment output, an unemployment rate tends to increase and thus pressure is placed on  increased wages and prices.

Conclusively, Note that Lower unemployment rate will lead to lower presence of workers in the companies .

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