Chapter 15 Why does money affect output A survey Considerable studies have been done in the past years on to answer the question that why money affects output. Some of it has come from clarifying old and fuzzy ideas coordination problems and the respective roles of expectations of nominal and real rigidities. A lot of it has come from running into dead ends such as the failure to explain the joint price and output responses to money in as if competitive models or the failure of individual nominal rigidities to generate aggregate price inertia under simple Ss rules. Research on real rigidities is the most urgent. A general feature of goods markets is that the fluctuations in demand lead mostly to movements in output rather than in markups; and a general feature of labor markets is that the fluctuations in the demand for labor lead mostly to movements in employment rather than in real wages. Given these features a very small amount of nominal rigidity will lead to long lasting effects of nominal money on output.