Question

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. Alyssa spends all of her money on comic books and mandarins. In 2015, she earned $16.00 per hour, the price of a comic book was $8.00, and the price of a mandarin was $1.00. Which of the following give the nominal value of a variable? Check all that apply. The price of a mandarin is $1.00 in 2015. The price of a mandarin is 0.13 comic books in 2015. Alyssa's wage is 2 comic books per hour in 2015. Which of the following give the real value of a variable? Check all that apply. The price of a comic book is 8 mandarins in 2015. The price of a comic book is $8.00 in 2015. Alyssa's wage is $16.00 per hour in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Alyssa's wage has risen to $32.00 per hour. The price of a comic book is $16.00 and the price of a mandarin is $2.00.

Answer 1

Nominal Value:-

-option(A)

Real Value:-

-option(A)

In 2020, the relative price of a comic book is 16/2 = 8 mandarin

Blanks-

1) increases

2) remains the same

3) affects

4) does not affect