Question 1

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

The idea that nominal variables (such as prices, wages, and interest rates) are largely determined by the quantity of money in circulation, while real variables (such as output and employment) are not influenced by money but rather by other factors such as technology and resource availability, is called the classical dichotomy. This idea is associated with classical economic theory and contrasts with the Keynesian view that money can have a significant impact on real economic activity.

Question 2

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 3

What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?

Accepted Answer

The price of an Apple iPhone and Samsung Galaxy smart phone are both continuous and measurable numerical values, making them both real variables. Thus, the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone would also be a real variable.

Question 4

According to the classical dichotomy,what is NOT influenced by monetary factors?

Accepted Answer

According to the classical dichotomy, real variables like real GDP are not influenced by monetary factors such as changes in the money supply or interest rates. Nominal variables like the price level and nominal GDP, on the other hand, are believed to be directly affected by changes in the money supply. Nominal interest rates are also affected by monetary factors as they reflect the cost of borrowing money in terms of nominal dollars.

Question 5

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

The answer of Figure 11-1 
-Refer to the Figure 11-1.If...

Question 6

According to the classical dichotomy,what is influenced by monetary factors?

Accepted Answer

The answer of According to the classical dichotomy,what is influenced...

Question 7

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

Her nominal wage has risen by $100, but if the prices of goods have increased more than $100 in the past year, her real wage has fallen. This means her purchasing power has decreased even though her nominal wage has increased.

Question 8

Which term refers to economic variables whose values are measured in monetary units?

Accepted Answer

Nominal variables are measured in monetary units, reflecting their value in terms of money rather than in physical units. This contrasts with real variables, which are adjusted for inflation and reflect actual quantities or volumes.

Question 9

What does nominal GDP measure?

Accepted Answer

Nominal GDP measures the dollar value of the economy's output of final goods and services.

Question 10

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

Accepted Answer

When interest rates are adjusted for the effects of inflation, they become real interest rates. Real interest rates reflect the actual purchasing power of the interest earned or paid. Nominal interest rates, on the other hand, do not take inflation into account and only reflect the nominal rate of return. Stock and flow are not related to interest rates adjusted for inflation.

Question 11

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

Accepted Answer

The increase in pay from $11 to $12 increases your nominal wage. If the price level remains constant, this increase in nominal wage also increases your real wage. However, if the price level increases proportionally more than your nominal wage, then your real wage would decrease. Therefore, if your nominal wage increased by a greater percentage than the price level, then your real wage also increased.

Question 12

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 (such as prices and inflation), but not real variables (such as output and employment). Real variables are determined by factors such as technology, resources, and institutions. This separation of nominal and real variables is a key assumption in classical and neoclassical economic models.

Question 13

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

Accepted Answer

The answer of What kind of variables are the interest...

Question 14

According to the classical dichotomy,what increases when the money supply increases?

Accepted Answer

According to the classical dichotomy, changes in the money supply only affect nominal variables, such as the price level, and not real variables, such as real GDP or the real interest rate. Therefore, when the money supply increases, the price level will also increase.

Question 15

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, leading to a decrease in the equilibrium value of money.

Question 16

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store.Which statement accurately identifies the types of variables involved?

Accepted Answer

The answer of Alina pays $25 for craft supplies she...

Question 17

What does real GDP measure?

Accepted Answer

Real GDP measures the total quantity of final goods and services produced, adjusted for inflation. It is used as a measure of a country's economic output and growth over time.

Question 18

What type of variable is the price level?

Accepted Answer

The price level is a nominal variable because it is measured in terms of money.

Question 19

According to the classical dichotomy,what 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, investment, and the real wage rate, are not directly affected by changes in the money supply.

Question 20

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, there is an increase in the money supply. This leads to a decrease in the interest rate, which in turn increases investment and consumption. As a result, there is an increase in demand for goods and services, which leads to an increase in the equilibrium price level. Therefore, the correct choice is C.

Quiz 11: Money Growth and Inflation

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.If the current money supply is located at MS1 and the value of money is 2,what is the excess demand or supply?

What is the price of an Apple iPhone divided by the price of a Samsung Galaxy smart phone called?

According to the classical dichotomy,what is NOT influenced by monetary factors?

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?

According to the classical dichotomy,what is influenced by monetary factors?

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?

Which term refers to economic variables whose values are measured in monetary units?

What does nominal GDP measure?

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

Your boss gives you an increase in the number of dollars you earn per hour,from $11 to $12.How does this change your nominal and real wages?

What idea does the classical dichotomy refer to?

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

According to the classical dichotomy,what increases when the money supply increases?

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

Alina pays $25 for craft supplies she purchases at the Bargainrama discount store.Which statement accurately identifies the types of variables involved?

What does real GDP measure?

What type of variable is the price level?

According to the classical dichotomy,what is influenced by monetary factors?

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