Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 30, 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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Students have asked these similar questions
The classical principle of monetary neutrality statesthat changes in the money supply do not influence_________ variables, and it is thought mostapplicable in the _________ run.a. nominal; shortb. nominal; longc. real; shortd. real; long
Money neutrality is the idea that
a. any policy can have intended and unintended consequences
b. in the long-run, markets will clear and return the economy to equilibrium regardless of what happens to the money supply.
c. there are two types of variables, nominal and real, and only nominal variables are affected by the money supply.
d. nominal and real interest rates are unrelated.
During the middle of the 20th century, income inequality in developed economies generally fell. The reason for this was
a. average incomes didn't rise but welfare systems redistributed income.
b. that returns to assets held by high income earners fell steadily.
c. incomes overall rose but taxation systems were slowly made more and more progressive.
d. a rise in average income with incomes of the bottom deciles rising faster than the top.
The short-run impact on the nominal interest rate of monetary expansion is different from its long-run impact. Which of the following explanations is not correct?a. In the short run, nominal interest rate falls due to Fisher effect.b. Over time, rising income pushes up nominal interest rate via increased demand for money.c. Over time, expected inflation rate rises, which in turn pushes up nominal interest rate.d. Over time, rising prices also push up nominal interest rate.e. All of the above are correct
Chapter 30 Solutions
Principles of Economics (MindTap Course List)
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