The classical dichotomy is separation of real and nomial variable. The following
ID: 1245000 • Letter: T
Question
The classical dichotomy is separation of real and nomial variable. The following questions ask you to make this distinction. Hannah is a construction worker who spends all of her money on novels and crullers. In 2011 she earned $10 per hour, the price of a novel was $2, and the price of cruller was $1. Which of the following involve nominal variables? check all that apply
[ ] The price of a cruller is $1 in 2011
[ ] Hannah's wage is $10 per hour in 2011
[ ] The price of a cruller is 0.5 novels in 2011
[ ] Hannah's wage is 5 novels per hour in 2011
Which of the following choices involve real variables? Check all that apply
[ ] Hannah's wage is $10 per hour in 2011
[ ] The price of a novel is 2 crullers in 2011
[ ] Hannah's wage is 10 crullers per hour in 2011
[ ] The price of a novel is $2 in 2011
Suppose that the Fed sharply increases the money supply between 2011 and 2016. In 2016, Hannah's wage has risen to $20 per hour. The price of a novel is $4 and the price of a cruller $2.
In 2016, the relative price of a novel is (0.5 novels/ 2 crullers/ $4/ $2)
Between 2011 and 2016, the nominal value of Hannah's wage (increases / Remains the same/ Decreases) and the real value of her wage (increases / remains the same / decreases)
Monetary neutrality is the proposition that a change in the money supplies affects (nominal / real) variables but not ( real / nominal) variables.
Explanation / Answer
[ ] The price of a cruller is $1 in 2011
[ ] Hannah's wage is 10 crullers per hour in 2011
2 crullers
increases
remains the same
nomina
real
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