Question

According to keynesians, the primary reason money is not neutral is

Answer 1

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According to Keynesians, the primary reason money is not neutral is (a) rational expectations. (b) price stickiness. ... In the Keynesian model in the long run, an increase in the money supply will raise (a) the price level but not the level of output. (b) the level of output but not the price level.

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Answer 2

According to the Keynesians, the primary reason ‘money is not neutral’ is due price stickiness.

Explanation:

• The Keynesian theory for money and wages becomes leads to price stickiness in the economy since they do not adjust quickly to the changes in the market.  

• On the same note since money is neutral in the ‘long run’, and not in the short run therefore in the long run when there is any change in the demand for the supply of money it will not affect the output or the rate of interest.  

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