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he classical dichotomy is the separation of real and nominal variables. The following questions test your...

he classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction.

Dina spends all of her money on paperback novels and donuts. In 2012, she earned $14.00 per hour, the price of a paperback novel was $7.00, and the price of a donut was $2.00.

Which of the following give the nominal value of a variable? Check all that apply.

Dina's wage is $14.00 per hour in 2012.

The price of a donut is 0.29 paperback novels in 2012.

Dina's wage is 2 paperback novels per hour in 2012.

Which of the following give the real value of a variable? Check all that apply.

Dina's wage is 7 donuts per hour in 2012.

The price of a paperback novel is $7.00 in 2012.

Dina's wage is $14.00 per hour in 2012.

Suppose that the Fed sharply increases the money supply between 2012 and 2017. In 2017, Dina's wage has risen to $28.00 per hour. The price of a paperback novel is $14.00 and the price of a donut is $4.00.

In 2017, the relative price of a paperback novel is (.29 donuts, 3.5 donuts, $4, or $14)   .

Between 2012 and 2017, the nominal value of Dina's wage (decreases,increases, or remains the same) , and the real value of her wage (decreases,increases, or remains the same) .

Monetary neutrality is the proposition that a change in the money supply (affects, does not affect) nominal variables and (affects, does not affect) real variables.

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Answer #1

Nominal values are stated in monetary terms.

Real values are stated in commodity terms.

Following give the nominal value of a variable -

Dina's wage is $14 per hour in 2012.

Following gives the real value of a variable -

Dina's wage is 7 donuts per hour in 2012.

In 2017, price of a paperback novel is $14 and the price of a donut is $4.

In 2017, the relative price of a paperback novel is (4/14) 0.29 donuts.

Between 2012 and 2017, the nominal value of Dina's wage increases, and the real value of her wage remains the same.

Monetary neutrality is the preposition that a change in the money supply affects nominal variables and does not affect real variables.

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