PRICIPLES OF MACROECONOMICS
8th Edition
ISBN: 9781337761598
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 17, Problem 1CQQ
To determine
Nominal and real variables and money neutrality.
Expert Solution & Answer
Answer to Problem 1CQQ
Option ‘d’ is the correct answer.
Explanation of Solution
Option (d):
According to the principle of monetary neutrality, only nominal variables are affected by changes in the money supply. Also, monetary neutrality approximately describes the behavior of the economy in the long run. Thus, option ‘d’ is correct.
Option (a):
By the principle of monetary neutrality, nominal variables are affected by changes in the money supply. Also, monetary neutrality approximately describes the behavior of the economy in the long run. Thus, option ‘a’ is incorrect.
Option (b):
By the principle of monetary neutrality, nominal variables are affected by changes in the money supply. Thus, option ‘b’ is incorrect.
Option (c):
Monetary neutrality approximately describes the behavior of the economy in the long run. Thus, option ‘c’ is incorrect.
Economics Concept Introduction
Concept introduction:
Nominal variables: Nominal variable refers to those variables that are measured in monetary units.
Real variables: Real variables refer to those variables that are measured in physical units.
Monetary neutrality: Money neutrality refers to the changes in the money supply that do not affect real variables.
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