Long-run Impact of Monetary Policy
-- The modern ViewLong-run implications of expansionary policy:
When expansionary monetary policy leads to rising prices, decision makers eventually anticipate the higher inflation rate and build it into their choices.
As this happens, money interest rates, wages, and incomes will reflect the expectation of inflation, and so real interest rates, wages, and real output will return to their long-run normal levels.
Thus, in the long run, money supply growth will lead primarily to higher prices (inflation) just as the quantity theory of money implies.