Final answer:
In the short run, the Keynesian model predicts that changes in monetary policy can have a significant impact on output and employment. However, in the long run, the model predicts that changes in the money supply do not affect output or employment.
Step-by-step explanation:
In the Keynesian model, monetary neutrality does not hold in the short run. According to the Keynesian theory, changes in monetary policy such as an increase in money supply can have a significant impact on output and employment in the short run.
For example, an expansionary monetary policy that increases the money supply can stimulate aggregate demand, leading to an increase in output and a decrease in unemployment in the short run. This is because Keynesians believe that prices and wages are sticky in the short run, meaning they do not adjust immediately to changes in demand.
However, in the long run, the Keynesian model predicts that monetary neutrality holds. Changes in the money supply do not affect output or employment in the long run, as prices and wages fully adjust to changes in demand. In the long run, the economy reaches its potential level of output, known as full employment.