Question

9:02 ร LTE 25. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes a. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased b. your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage decreased c. your real wage increase. If your real wage rose by a greater percentage than the price level, then your nominal wage also increased. d. your real wage decrease. If your real wage rose by a greater percentage than the price level, then your nominal wage decreased. 26. According to the classical dichotomy, which of the following is affected by monetary factors? a. nominal wages b. the price level c. nominal GDP d. All of the above are correct. 27. According to the classical dichotomy, when the money supply doubles which of the following doubles? a. the price level and nominal GDP b. the price level and real GDP c. only real GDP d. only the price level 28. Most economists believe the principle of monetary neutrality is a. relevant to both the short and long run. b. irrelevant to both the short and long run. c. mostly relevant to the short run. d. mostly relevant to the long run. 29. If M = 3.000, P = 2, and Y = 12.000, what is velocity? a. C. 30. The nominal interest rate is 4.5 percent and the

Answer 1

(25) (a)

Real wage = Nominal wage / Price level

So,

Growth in real wage = Growth in nominal wage - Growth in price level

If nominal wage increases faster than price level, real GDP will increase.

(26) (d)

As per Classical dichotomy, monetary variable will change only the nominal variables, leaving real variables unchanged.

(27) (d)

As per Classical dichotomy, % Change in money supply = % Change in price level (inflation)

(28) (d)

Neutrality of money holds in long run, but not in short run.

(29) (d)

M x V = P x Y

V = (P x Y) / M = (2 x 12,000) / 3,000 = 8