Changes in the money supply affect real variables, such as output and employment, in the long run.

In economics, the relationship between the money supply and real variables like output and employment is a critical area of study. Generally, in the long run, changes in the money supply do not affect real variables due to the principles outlined in classical economics and the neutrality of money.

1. Money Supply and Real Variables: In the short term, an increase in the money supply can lower interest rates, stimulate investment, and increase consumption, leading to higher output and employment. This is often referred to as the "aggregate demand effect."

2. Long-Run Neutrality of Money: In the long run, however, the effect of increased money supply on real output and employment diminishes. This concept is known as the neutrality of money, which posits that while changes in the money supply can change nominal variables (like price levels), they do not affect real variables such as output and employment in a sustainable manner.

3. Adjustment to Equilibrium: Over time, the economy adjusts to the new level of money supply, and prices and wages generally rise. As a result, any initial increase in output or employment due to an increased money supply tends to revert back to its natural levels.

4. Conclusion: Therefore, while changes in the money supply can have significant short-run impacts on the economy, in the long run, they primarily affect price levels, leaving real variables like output and employment unaffected.

In summary, changes in the money supply can influence real economic variables in the short term, but they ultimately revert to their original state, underscoring the fundamental principle of the neutrality of money in the long run.