Inflation: Its Causes, Effects, and Social Costs Graded Assignment IRead Chapter
ID: 1219178 • Letter: I
Question
Inflation: Its Causes, Effects, and Social Costs Graded Assignment IRead Chapter 5 l Back to Assignment Due Tuesday 06.14.16 at 11:45 PM Do No Harm 13 Attempts: 10. The classical dichotomy and the neutrality of money Aa Aa The classical dichotomy is the separation of real and nominal variables. The following questions ask you to make this distinction Stella is a construction worker who spends all of her money on magazines and bagels. In 2012, she earned $10 per hour, the price of a magazine was $2, and the price of a bagel was $1. Which of the following choices involve nominal variables? Check all that apply. Stella's wage is 5 magazines per hour in 2012. Stella's wage is $10 per hour in 2012. The price of a bagel is $1 in 2012. The price of a bagel is 0.5 magazines in 2012. Which of the following choices involve real variables? Check all that apply. The price of a magazine is 2 bagels in 2012. Stella's wage is 10 gels per hour in 2012. Stella's wage is $10 per hour in 2012. The price of a magazine is $2 in 2012. Suppose that the Federal Reserve sharply increases the money supply between 2012 and 2017. In 2017, Stella's wage has risen to $20 per hour. The price of a magazine is $4 and the price of a bagel is $2. In 2017, the relative price of a magazine is and the real value of her wage Between 2012 and 2017, the nominal value of Stella's wage Monetary neutrality is the proposition that a change in the money supplies affects variables but not variables ONA 3.16 2004-2016 Aplia. All rights reserved. Grade It Now Save & Continue 2013 Cengage Learning except as nated. Al rights reserved.Explanation / Answer
In economic terms, when value of commodity or any other thing is expressed in terms of some fixed currency value then such value is referred to as nominal value of commodity or any other thing.
When value of commodity or any other thing is expressed in terms of quantity of some other commodity or thing then such value is referred to as real value of commodity or any other thing.
So, Stella's wage rate, price of magazines, and price of bagel in dollar terms are nominal variables.
On the other hand, Stella's wage in terms of quantity of magazines or quantity of bagels, price of magazine in terns of quantity of bagel and price of bagel in terms of quantity of magazine are real variables.
Choices involving nominal variables are -
(i) Stella's wage is $10 per hour in 2012.
(ii) The price of bagel is $1 in 2012.
Hence, the correct answer is option (2) and (3).
Choices involving real varibales are -
(i) The price of magazine is 2 bagels in 2012.
(ii) Stella's wage is 10 bagels per hour in 2012.
Hence, the correct answer is option (1) and (2).
In 2017, the relative price of a magazine is 2 bagels.
Between 2012 and 2017, the nominal value of Stella's wage has increased and the real value of her wage has remained unchanged.
Monetary neutrality is the preposition that a change in the money supplies affects nominal variables but not real variables.