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. Hannah divides all of her income between spending on digital movie rentals and lattes. In 2015, she earned an hourly wage of $28.00, the price of a digital movie rental was $7.00, and the price of a latte was $4.00. Which of the following give the real value of a variable? Check all that apply. The price of a digital movie rental is $7.00 in 2015. Hannah's wage is $28.00 per hour in 2015. The price of a digital movie rental is 1.75 lattes in 2015. Which of the following give the nominal value of a variable? Check all that apply. The price of a latte is 0.57 digital movie rentals in 2015. Hannah's wage is 4 digital movie rentals per hour in 2015. The price of a latte is $4.00 in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Hannah's wage has risen to $56.00 per hour. The price of a digital movie rental is $14.00 and the price of a latte is $8.00. In 2020, the relative price of a digital movie rental is Between 2015 and 2020, the nominal value of Hannah's wage Monetary neutrality is the proposition that a change in the money supply variables. and the real value of her wage nominal variables and real
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. Hannah divides all of her income between spending on digital movie rentals and lattes. In 2015, she earned an hourly wage of $28.00, the price of a digital movie rental was $7.00, and the price of a latte was $4.00. Which of the following give the real value of a variable? Check all that apply. The price of a digital movie rental is $7.00 in 2015. Hannah's wage is $28.00 per hour in 2015. The price of a digital movie rental is 1.75 lattes in 2015. Which of the following give the nominal value of a variable? Check all that apply. The price of a latte is 0.57 digital movie rentals in 2015. Hannah's wage is 4 digital movie rentals per hour in 2015. The price of a latte is $4.00 in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Hannah's wage has risen to $56.00 per hour. The price of a digital movie rental is $14.00 and the price of a latte is $8.00. In 2020, the relative price of a digital movie rental is Between 2015 and 2020, the nominal value of Hannah's wage Monetary neutrality is the proposition that a change in the money supply variables. and the real value of her wage nominal variables and real
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Concept explainers
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
Question
Transcribed Image Text: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.
Hannah divides all of her income between spending on digital movie rentals and lattes. In 2015, she earned an hourly wage of $28.00, the price of a
digital movie rental was $7.00, and the price of a latte was $4.00.
Which of the following give the real value of a variable? Check all that apply.
The price of a digital movie rental is $7.00 in 2015.
Hannah's wage is $28.00 per hour in 2015.
The price of a digital movie rental is 1.75 lattes in 2015.
Which of the following give the nominal value of a variable? Check all that apply.
The price of a latte is 0.57 digital movie rentals in 2015.
Hannah's wage is 4 digital movie rentals per hour in 2015.
The price of a latte is $4.00 in 2015.
Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Hannah's wage has risen to $56.00 per hour. The price of
a digital movie rental is $14.00 and the price of a latte is $8.00.
In 2020, the relative price of a digital movie rental is
Between 2015 and 2020, the nominal value of Hannah's wage
Monetary neutrality is the proposition that a change in the money supply
variables.
I
and the real value of her wage
nominal variables and
real
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