Question

In: Economics

The classical dichotomy is the separation of real and nominal variables. The following questions test your...

The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction.

Megan spends all of her money on magazines and mandarins. In 2012, she earned $18.00 per hour, the price of a magazine was $9.00, and the price of a mandarin was $1.00.

Which of the following give the nominal value of a variable? Check all that apply.

Megan's wage is $18.00 per hour in 2012.

Megan's wage is 2 magazines per hour in 2012.

The price of a mandarin is 0.11 magazines in 2012.

Which of the following give the real value of a variable? Check all that apply.

Megan's wage is 18 mandarins per hour in 2012.

Megan's wage is $18.00 per hour in 2012.

The price of a magazine is $9.00 in 2012.

Suppose that the Fed sharply increases the money supply between 2012 and 2017. In 2017, Megan's wage has risen to $36.00 per hour. The price of a magazine is $18.00 and the price of a mandarin is $2.00.

In 2017, the relative price of a magazine is .

Between 2012 and 2017, the nominal value of Megan's wage , and the real value of her wage .

Monetary neutrality is the proposition that a change in the money supply nominal variables and real variables.

Solutions

Expert Solution

Nominal variables are measure in monetary terms.

Following give the nominal value of a variable

Megan's wage is $18.00 per hour in 2012.

Real Variables are measured in physical units.

Following give the real value of a variable.

Megan's wage is 18 mandarins per hour in 2012

----------------------------------------------------------------------

In 2012, the Megan's wage rate = $18; Price of magazine = $9 ; Price of mandarin = $1

In 2017, the Megan's wage rate= $36; Price of magazine = $18; Price of mandarin = $2.

In 2017, relative price of a magazine is 9 mandarin.

relative price of a magazine in 2017 = (Price of magazine in 2017 / Price of Mandarin in 2017)

relative price of a magazine in 2017 = ($18 / $2) = 9 Mandarin.

------------------------------------------------

Between, 2012 and 2017, the nominal value of Megan's wage increase, and the real value of her wage remains the same.

Monetary neutrality is the proposition that a change in the money supply affects the nominal variables and does not affect the real variables.

Note: Real wage in terms of magazines in 2012 = (Nominal wage in 2012 / Price of magazine in 2012)

Real wage in terms of magazines in 2012 = ($18 / $9) = 2 magazines.

Real wage in terms of magazines in 2017 = (Nominal wage in 2017 / Price of magazine in 2017)

Real wage in terms of magazines in 2017 = ($36 / $18) = 2 magazines

Hence, the real wage remains same.

Rahul Sunny answered 2 months ago

Next > < Previous

Related Solutions

The classical dichotomy is the separation of real and nominal variables. The following questions test your...

The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Amy spends all of her money on comic books and beignets. In 2009, she earned $18.00 per hour, the price of a comic book was $9.00, and the price of a beignet was $2.00. Which of the following give the nominal value of a variable? Check all that apply. Amy's wage is $18.00 per hour in 2009. Amy's wage is...

- Define Classical Theory of inflation; Classical Dichotomy: how nominal and real variables are affected by...

- Define Classical Theory of inflation; Classical Dichotomy: how nominal and real variables are affected by changes in money supply in the long run? In the short-run? Define and bring examples of nominal and real variables. - What factors cause real exchange rate to rise? What does real exchange rate appreciation (depreciation) imply for net exports? Why?

1. Classical Theory of inflation; Classical Dichotomy: how nominal and real variables are affected by changes...

1. Classical Theory of inflation; Classical Dichotomy: how nominal and real variables are affected by changes in money supply in the long run? In the short-run? Define and bring examples of nominal and real variables. 2. The costs of inflation: Shoeleather costs; Menu costs; Arbitrary redistributions of wealth as a result of unexpected inflation between debtors and creditors: When do debtors gain (when inflation is smaller than expected)? When do creditors gain (when inflation is higher than expected)?

3. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of...

3. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Amy spends all of her money on paperback novels and mandarins. In 2015, she earned $18.00 per hour, the price of a paperback novel was $9.00, and the price of a mandarin was $1.00. Which of the following give the nominal value of a variable? Check all that apply. Amy's wage...

1. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of...

1. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Maria spends all of her money on paperback novels and beignets. In 2011, she earned $27.00 per hour, the price of a paperback novel was $9.00, and the price of a beignet was $3.00. Which of the following give the nominal value of a variable? Check all that apply. The price...

1. The “classical dichotomy” refers to the separation of: (a) supply-side factors vs. demand-side factors. (b)...

1. The “classical dichotomy” refers to the separation of: (a) supply-side factors vs. demand-side factors. (b) changes in the domestic (or closed) economy vs. changes abroad (or an open economy). (c) short-run fluctuations vs. long-run economic growth. (d) real vs. nominal variables. (e) the public sector –government spending and tax revenues– vs. the private sector (C and I). 2. Which of the following does not explain the slope of the aggregate demand curve? (a) the wealth effect. (b) the interest-rate...

Explain the following terms: (i) Classical dichotomy (ii) Impossible trinity

Answer the following macroeconomics questions. a) What is the difference between nominal GDP and real GDP?...

Answer the following macroeconomics questions. a) What is the difference between nominal GDP and real GDP? Which one of them is used to calculate the economic growth rate? Justify your answer. b) Give the equation used to calculate the unemployment rate. State the different types of unemployment. In your opinion, which type is the most problematic one? Justify your answer. c) Governments may achieve certain economic goals; say controlling inflation, by implementing fiscal and/or monetary policies. Explain briefly the difference...

Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run.

Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a _______ variable, will cause the price level, a _______ variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a _______ variable. The separation of real variables and nominal variables is known as _______ .In the short run, however, most economists...

Identify whether the following is a nominal variable or a real variable. Justify your answer. Price...

Identify whether the following is a nominal variable or a real variable. Justify your answer. Price of a compact disc W/P: Price of a pizza: Nominal GDP: Interest paid by bank on deposits in bank accounts: Real GDP: Price of CD/Price of Pizza Real interest rate: Classical economists suggest that Money is This is however true in the long run.

Subjects