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. Eileen spends all of her money on comic books and beignets. In 2014, she earned $27.00 per hour, the price of a comic book 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. Eileen's wage is $27.00 per hour in 2014. Eileen's wage is 3 comic books per hour in 2014. The price of a beignet is $3.00 in 2014. Which of the following give the real value of a variable? Check all that apply. Eileen's wage is 9 beignets per hour in 2014. Eileen's wage is $27.00 per hour in 2014. The price of a comic book is 3 beignets in 2014. Suppose that the Fed sharply increases the money supply between 2014 and 2019. In 2019, Eileen's wage has risen to $54.00 per hour. The price of a comic book is $18.00 and the price of a beignet is $6.00. In 2019, the relative price of a comic book is Between 2014 and 2019, the nominal value of Eileen's wage value of her wage , and the real Monetary neutrality is the proposi that change in the money supply nominal variables and real variables.

Answer 1

The following give the nominal value ( value in terms of money) of a variable:

• Eileen's wage is $27.00 per hour in 2014.
• The price of a beignet is $3.00 in 2014.

The following give the real value of a variable:

• Eileen's wage is 9 beignets per hour in 2014
• The price of a comic books is 3 beignets in 2014.

In 2019, the relative price of a comic book= Price of comic book/ Price of a beignet= 18/6= 3 beignets

In 2019, the relative price of a comic book is 3 beignets.

Between 2014 and 2019, the nominal value of Eileen's wage increased and the real value of her wage remained constant/unchanged.

Money neutrality is a preposition that a change in the money supply changes/affects nominal Variables and doesn't change/ doesn't affect real Variables.