2. The classical dichotomy and the neutrality of money The classical dichotomy i

Question

2. 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. Susan spends all of her money on paperback novels and mandarins. In 2011, she earned $14.00 per hour, the price of a paperback novel was $7.00, and the price of a mandarin was $1.00 Which of the following give the nominal value of a variable? Check all that apply. Susan's wage is 2 paperback novels per hour in 2011. The price of a mandarin is 0.14 paperback novels in 2011 The price of a mandarin is $1.00 in 2011. Which of the following give the real value of a variable? Check all that apply. Susan's wage is $14.00 per hour in 2011. The price of a paperback novel is $7.00 in 2011 The price of a paperback novel is 7 mandarins in 2011

Explanation / Answer

a) The nominal value is the value that is stated in term of monetary units.

The statement "The price of the Mandarin is $1 in 2011".

b) The statement representing the real value is "The price of a paperback novel is 7 mandarins in 2011"

c) in 2016, the relative price of the paperback novel is "unchanged/ same".

d) Between 2011 and 2016, the nominal value of Susan's wage "doubled" and the real wage "remained the same".

e) change in the money supply affects the nominal value and doesn't affect the real value of things.  

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