Question 1

Figure 11-1
 
-Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?

Accepted Answer

When the money supply curve shifts from MS₁ to MS₂, it indicates an increase in the money supply. This typically leads to a decrease in the equilibrium value of money, as more money in the economy can lead to higher price levels, reducing the purchasing power of money.

Question 2

What type of variable is the price level?

Accepted Answer

The price level is a nominal variable because it represents a numerical value assigned to a category or label, such as the level of prices for goods and services. It does not have a direct relationship with any objective physical quantity or measurable quantity.

Question 3

Figure 11-1
 
-Refer to the Figure 11-1.If the money supply is MS₂ and the value of money is 2,how much is the excess demand or supply?

Accepted Answer

At MS₂ and value of money 2, the equilibrium point is at B, where the quantity of money demanded equals the quantity of money supplied. Point A represents the quantity demanded at the given value of money, which is higher than the quantity of money supplied (represented by point C) at MS₂. Therefore, there is an excess supply, which is equal to the distance between A and B (represented by the vertical distance between A and B). Hence, the correct answer is D.

Question 4

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

Accepted Answer

This idea is called the classical dichotomy, which is the separation of nominal and real variables in economic models. This theory suggests that changes in the quantity of money only affect nominal variables, such as prices and wages, while real variables, such as output and employment, are determined by non-monetary factors such as technology and resource availability. The classical dichotomy is a key concept in classical economics and remains relevant in modern macroeconomic theory.

Question 5

Figure 11-1
 
-Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?

Accepted Answer

When the money supply curve shifts from MS₁ to MS₂, the equilibrium point moves from E₁ to E₂, resulting in an increase in the equilibrium price level. Money supply affects the general price level in an economy, and an expansion in the money supply leads to an increase in the general price level. Therefore, the correct option is (C). The other options, (A) and (B), are not directly affected by the shift in the money supply curve. Option (D) is incorrect as an increase in the equilibrium value of money would occur if the demand for money increased, which is not the case here.

Question 6

Which of the following terms refers to economic variables whose values are measured in monetary units?

Accepted Answer

The answer of Which of the following terms refers to...

Question 7

According to the classical dichotomy,which of the following is influenced by monetary factors?

Accepted Answer

The answer of According to the classical dichotomy,which of the...

Question 8

The interest rates usually published in newspapers such as the Financial Post are what kind of economic variables?

Accepted Answer

Interest rates published in newspapers are nominal rates, which do not account for inflation.

Question 9

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

Accepted Answer

Interest rates adjusted for inflation are known as real interest rates. Real interest rates reflect changes in the purchasing power of money, making them a real variable. Nominal variables are not adjusted for the effects of inflation and can be misleading in economic analysis. Stock variables refer to the amount of assets at a specific point in time, while flow variables refer to the change over a period of time.

Question 10

According to the classical dichotomy,which of the following increases when the money supply increases?

Accepted Answer

According to the classical dichotomy, changes in the money supply only affect nominal variables, such as prices, but do not affect real variables, such as real GDP, real interest rates, and real wages. Therefore, when the money supply increases, the price level is expected to increase, but the real interest rate, real GDP, and real wage remain unchanged.

Question 11

Which of the following does real GDP measure?

Accepted Answer

Real GDP measures the total quantity of final goods and services produced in an economy after adjusting for inflation, so it reflects changes in output alone. The dollar value of the output is measured by nominal GDP, which does not account for changes in the price level. Total income received from producing final goods and services is measured by GDI (gross domestic income), which includes not only wages and salaries but also rent, interest, and profits. The change in prices from the base year to the current year is measured by GDP deflator, which is used to convert nominal GDP to real GDP.

Question 12

Randy pays $120 for a bag of goods he purchases at the HyValu discount store.Which of the following accurately identifies the types of variables involved?

Accepted Answer

The $120 is a nominal variable because it represents the face value of money without adjusting for inflation, while the bag of groceries is a real variable as it represents tangible goods.

Question 13

An assistant professor of economics gets a $100-a-month raise,but then she figures that with her current monthly salary she can't buy as many goods as she could last year.What has happened to her real and nominal wage?

Accepted Answer

The professor's nominal wage has risen by $100, but the inflation rate must have been higher than $100 over the year for her real wage to fall. This means that her purchasing power has actually decreased, so her real wage has fallen despite the nominal wage increase.

Question 14

What is the price of a Honda Accord divided by the price of a Honda Civic called?

Accepted Answer

The price of a Honda Accord divided by the price of a Honda Civic is a real variable because it is a quantitative measure that can take on any value. It is not a classical variable (which typically refers to a fixed parameter in a mathematical equation), a dichotomous variable (which only has two possible values) or a nominal variable (which is used to categorize data into discrete categories).

Question 15

What idea does the classical dichotomy refer to?

Accepted Answer

The classical dichotomy refers to the idea that the supply of money determines nominal variables, but not real variables. This means that changes in the money supply only affect prices and other nominal variables, and not real variables like output and employment levels. The classical dichotomy is a key assumption of classical economics, which emphasizes the role of markets and prices in allocating resources and achieving economic growth.

Question 16

According to the classical dichotomy,which of the following is influenced by monetary factors?

Accepted Answer

According to the classical dichotomy, nominal variables such as nominal interest rates are influenced by monetary factors, while real variables such as real GDP and the real wage rate are determined by non-monetary factors such as technology, resources, and institutions. Therefore, the best choice would be C, nominal interest rates.

Question 17

What does nominal GDP measure?

Accepted Answer

Nominal GDP measures the dollar value of the economy's output of final goods and services. It does not take into account any changes in price levels or inflation.

Question 18

According to the classical dichotomy,which of the following is NOT influenced by monetary factors?

Accepted Answer

According to the classical dichotomy, real variables such as real GDP, employment, and output are not influenced by monetary factors but only by non-monetary factors like technology, resource availability, and productivity. Monetary factors affect only nominal variables such as the price level and nominal GDP. Nominal interest rates are also influenced by monetary factors as they are set by central banks.

Question 19

Figure 11-1
 
-Refer to the Figure 11-1.If the current money supply is located at MS₁ and the value of money is 2,what is the excess demand or supply?

Accepted Answer

If the value of money is 2 and the money supply is at MS₁, it indicates that the money market is in equilibrium, meaning there is neither excess demand nor excess supply.

Question 20

Your boss gives you an increase in the number of dollars you earn per hour.How does this change your nominal and real wages?

Accepted Answer

An increase in pay would lead to an increase in nominal wage, as the amount of dollars earned per hour increases. If the increase in nominal wage is greater than the price level (inflation), then the real wage would also increase as the purchasing power of the nominal wage increases.

Quiz 11: Money Growth and Inflation

Figure 11-1 -Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?

What type of variable is the price level?

Figure 11-1 -Refer to the Figure 11-1.If the money supply is MS₂ and the value of money is 2,how much is the excess demand or supply?

There is an idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables.What is this idea called?

Figure 11-1 -Refer to the Figure 11-1.What happens when the money supply curve shifts from MS₁ to MS₂?

Which of the following terms refers to economic variables whose values are measured in monetary units?

According to the classical dichotomy,which of the following is influenced by monetary factors?

The interest rates usually published in newspapers such as the Financial Post are what kind of economic variables?

What kind of economic variables are the interest rates when adjusted for the effects of inflation?

According to the classical dichotomy,which of the following increases when the money supply increases?

Which of the following does real GDP measure?

Randy pays $120 for a bag of goods he purchases at the HyValu discount store.Which of the following accurately identifies the types of variables involved?

An assistant professor of economics gets a $100-a-month raise,but then she figures that with her current monthly salary she can't buy as many goods as she could last year.What has happened to her real and nominal wage?

What is the price of a Honda Accord divided by the price of a Honda Civic called?

What idea does the classical dichotomy refer to?

According to the classical dichotomy,which of the following is influenced by monetary factors?

What does nominal GDP measure?

According to the classical dichotomy,which of the following is NOT influenced by monetary factors?

Figure 11-1 -Refer to the Figure 11-1.If the current money supply is located at MS₁ and the value of money is 2,what is the excess demand or supply?

Your boss gives you an increase in the number of dollars you earn per hour.How does this change your nominal and real wages?