Question

According to classical macroeconomic theory, changes in the money supply affect nominal variables and real variables....

  1. According to classical macroeconomic theory, changes in the money supply affect
    1. nominal variables and real variables.
    2. nominal variables, but not real variables.
    3. real variables, but not nominal variables.
    4. neither nominal nor real variables.
  1. The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,
    1. production is more profitable and employment rises.
    2. production is more profitable and employment falls.
    3. production is less profitable and employment rises.
    4. production is less profitable and employment falls.
  2. For a number of years Canada and many European countries have had higher average unemployment rates than the United States. This suggests that these countries
    1. have higher average inflation rates than the United States.
    2. have long-run Phillips curves to the right of the United States’.
    3. may have less generous unemployment compensation or lower minimum wages.
    4. All of the above are consistent with the evidence on unemployment rates.

  1. During 1999 and 2000 the Federal Open Market Committee of the Federal Reserve System in the U.S. noted that productivity increases had caused aggregate supply to shift to the right. Other things the same, this should have
    1. shifted the short-run Phillips curve to the left. So, by increasing the money supply the Fed could have reduced unemployment further while returning inflation to its former level.
    2. shifted the short-run Phillips curve to the left. So, by increasing the money supply the Fed could have reduced unemployment further only by raising the inflation rate above its former level.
    3. shifted the short-run Phillips curve to the right. So, by increasing the money supply the Fed could have reduced unemployment further while returning inflation to its former level.
    4. None of the above is correct.

  1. Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes

a.      both the short run and the long run.

b.      the short run, but not the long run.

c.      the long run, but not the short run.

d.      neither the long run nor the short run.

Homework Answers

Answer #1

1) According to classical macroeconomic theory, changes in the money supply affect nominal variables, but not real variables. It is referred to as neutrality of money which states that money is neutral in its effects and affect only nominal variables. Hence the answer is option (b).

2) The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is more profitable and employment rises. The rise in price level above the expected level induces firms to produce more to get better revenue. Hence the answer is option (a).

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
5. Government purchases of goods and services differ from changes in taxes and transfer payments in...
5. Government purchases of goods and services differ from changes in taxes and transfer payments in that: A) the former is a type of fiscal policy, while the latter is a type of monetary policy. B) the former is a type of monetary policy, while the latter is a type of fiscal policy. C) the former influences aggregate demand directly, while the latter influences aggregate demand indirectly. D) the former influences aggregate demand indirectly, while the latter influences aggregate demand...
In March 2013 the Fed announced that it might decrease its open market purchases of securities...
In March 2013 the Fed announced that it might decrease its open market purchases of securities by the end of the year. This announcement suggests that the Fed is concerned that a. the unemployment rate will increase. b. the inflation rate will rise. c. the federal funds interest rate will fall too low for the Fed to control it. d. the federal funds interest rate will rise too high for the Fed to control it. In the aggregate supply-aggregate demand...
QUESTION 32 Wages tend to be sticky a. because of contracts, social norms, and notions of...
QUESTION 32 Wages tend to be sticky a. because of contracts, social norms, and notions of fairness. b. because of contracts, but not social norms or notions of fairness. c. because of social norms and notions of fairness, but not contracts. d. None of the above are correct. QUESTION 33 The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, a. production is more profitable and employment falls. b. production is...
Suppose that this year’s money supply is $400 billion, nominal GDP is $10trillion, and real GDP...
Suppose that this year’s money supply is $400 billion, nominal GDP is $10trillion, and real GDP is $4 trillion. 1.What is the price level? What is the velocity of money? 2. Suppose that velocity is constant and the economy’s output of goods and services rises by4% each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant? 3.What money supply should he Fed set next year if it wants...
QUESTION 64 The sticky-wage theory of the short-run aggregate supply curve says that when the price...
QUESTION 64 The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, a. production is less profitable and employment falls. b. production is less profitable and employment rises. c. production is more profitable and employment rises. d. production is more profitable and employment falls. 1 points    QUESTION 65 Other things the same, if technology increases, then in the long run a. both output and prices are lower. b. both output...
8. According to the Classical Dichotomy, a country with a hyper-inflation due to excessive money supply...
8. According to the Classical Dichotomy, a country with a hyper-inflation due to excessive money supply growth should have: nominal wage falling real wage falling real wage rising nominal wage rising 9. According to the Quantity Theory of Money and the Fisher equation, a rise in money supply (for a given level of GDP and velocity) should raise the: nominal interest rate and real interest rate inflation rate, nominal interest rate, and real interest rate inflation rate and nominal interest...
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
Wrong answers have been eliminated QUESTION 1 According to the equation of exchange, if real GDP...
Wrong answers have been eliminated QUESTION 1 According to the equation of exchange, if real GDP and money supply stays the same, a. inflation is always zero. b. money velocity must stay the same. c. the rate of inflation equals the rate of change in money velocity. d. None of the above.(Wrong) QUESTION 2 Structural unemployment occurs because a. workers give up looking for a job due to prolonged unemployment. b. employers are not hiring due to bad economic and...
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity....
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity. B) the aggregate unemployment rate. C) the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world. D) the aggregate quantity of output demanded by businesses only. 2.When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why...