Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

Monetary Policy

Monetary policy involves the management of a nation's money supply and interest rates by its central bank to control inflation, manage employment, and stabilize the currency.

Short Run

A period in economics where at least one input is fixed and cannot be changed, limiting adjustments in production.

Long Run

A period in which all inputs, including capital assets, can be adjusted by firms in response to market conditions.