a- nominal wages rose, but prices declines b- Nominal wages declines, but prices

Question

a- nominal wages rose, but prices declines

b- Nominal wages declines, but prices rose

c- Nominal wages and prices both rose

d- Nominal wages and prices both declined

e- It was not possible to say whether they would increase or fall, nor was it a very interesting question

f- Both remained unchanged

On the surface, "monetizing debt" looks like it is a form of debt financing. However, de facto, monetizing debt is just another way of financing fiscal policies through increases in. A) Taxes B) Borrowing C) Money supply D) The real interest rate E) The nominal interest rate

Explanation / Answer

Question number 1 correct option is option C money supply. Monetization of debt is a attempt by the government to finance its debt where buy it releases its bonds and Central Bank purchases it an in turn increasing the money supply in economy

The correct choice for question number 2 is option B. Classical economist argue that people will soon realise money illusion and then money supply will have no effect in the real variables. This is because money supply will shift the aggregate demand curve up but this will have no effect on real income because aggregate supply is vertical.

Question number 3 correct option is option C. Incase money illusion is persisting in the economy then it will imply, for a constant velocity of money, an increase in nominal wages as well as prices.

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