Final answer:
Monetary policy with immediate price adjustments will only have nominal effects as per the neoclassical model, leaving real output and employment unchanged in the long run.
Step-by-step explanation:
If prices adjust immediately and there is no sticky inflation, then monetary policy will only have nominal effects. This concept is part of the neoclassical view of economics, which assumes that monetary policy does not lead to any long-term change in real GDP, output, or the unemployment rate, but merely affects the price level.
In a scenario where monetary policy is enacted with immediate price adjustments, workers will demand higher wages in anticipation of increased prices, and employers will likely comply due to the expected increase in their own selling prices. Consequently, this shifts the short-run aggregate supply curve to reflect the new wages, but without changing the real GDP. Thus, while nominal variables like wages and prices adjust, the real economic indicators remain unaffected in the long-run due to the economy's adjustment back to its potential output. The assumption here is that all economic agents are fully rational and all markets, including the labor market, are perfectly flexible. Therefore, the economy remains on the long-run aggregate supply curve, with changes in monetary policy leading only to movements along the curve.