Question 1

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual nominal wage rate is:
A)€10.
B)€5.
C)€2.50.
D)none of the above.

Accepted Answer

The actual nominal wage rate remains €10 per hour regardless of changes in the price level, as it is the amount agreed upon before considering inflation or changes in purchasing power.

Question 2

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then expected real wage rate is:
A)€10.
B)€5.
C)€2.50.
D)none of the above.

Accepted Answer

The expected real wage rate is calculated as nominal wage divided by expected price level. Therefore, expected real wage rate= €10/2=€5. However, since the actual price level is 4, the real wage rate becomes €10/4= €2.50.

Question 3

If households misperceive prices, they may change real decisions in response to changes in the money supply in the long run.

Accepted Answer

In the long run, households adjust their perceptions and expectations, leading to no real changes in decisions due to changes in the money supply, as prices and wages fully adjust.

Question 4

Money can only effect real variables in the short run, if people expect the increase in the money supply.

Accepted Answer

The answer of Money can only effect real variables in...

Question 5

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then actual nominal wage rate is:
A)€10.
B)€2.50.
C)€2.
D)none of the above.

Accepted Answer

The nominal wage is the wage paid in current dollars, euros, etc., without adjustment for inflation or changes in the price level. Therefore, if the nominal wage is €10 per hour, it remains €10 regardless of the expected or actual price level.

Question 6

We would expect households to have the most complete information about:
A)the wage rate available on other jobs.
B)products they purchase frequently.
C)products purchased occasionally like an automobile.
D)all of the above.

Accepted Answer

Households are the primary consumers of products, so they would have the most complete information about the products they purchase frequently. While households may have some information about wage rates available on other jobs, this information may not be as complete as that available to employers or industry experts. Similarly, while households may have some information about occasional purchases like automobiles, they may not have access to the same level of detailed information as industry experts or dealerships.

Question 7

If the nominal wage rises from €10 per hour in period one to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:
A)the nominal wage is rising.
B)the expected real wage is rising.
C)the actual real wage is falling.
D)all of the above.

Accepted Answer

The nominal wage is rising from €10 to €15 per hour. The expected real wage is falling because the expected price level increase is greater than the nominal wage increase. The actual real wage is also falling because the actual price level increase is greater than the nominal wage increase.

Question 8

We would expect households to have incomplete information about:
A)their own wage rate.
B)products they purchase frequently.
C)products purchased occasionally like an automobile.
D)all of the above.

Accepted Answer

Households are more likely to have incomplete information about products purchased occasionally, like an automobile, because they engage with these markets less frequently, making it harder to stay informed about prices, quality, and options compared to products they buy regularly.

Question 9

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then:
A)the expected real wage rate is greater than the actual real wage rate.
B)the expected real wage rate is less than the actual real wage rate.
C)the expected real wage rate is greater than the actual nominal wage rate.
D)the actual real wage rate is greater than the actual nominal wage rate.

Accepted Answer

The expected real wage rate is calculated as the nominal wage divided by the expected price level, which gives €5 per hour (€10 / 2). The actual real wage rate is the nominal wage divided by the actual price level, which gives €2.5 per hour (€10 / 4). Therefore, the expected real wage rate is greater than the actual real wage rate.

Question 10

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then expected real wage rate is:
A)€10.
B)€2.50.
C)€2.
D)none of the above.

Accepted Answer

The expected real wage rate is calculated by dividing the nominal wage by the expected price level, so €10 / 5 = €2.

Question 11

We would expect households to have incomplete information about:
A)their own wage rate.
B)products they purchase frequently.
C)wage rates available on other jobs.
D)all of the above.

Accepted Answer

Households often have incomplete information about wage rates available on other jobs because they may not have access to all job listings or understand the full range of wages offered across different companies and industries. Information about their own wage rate and products they purchase frequently is typically well-known to them.

Question 12

If monetary authorities follow a monetary rule, then monetary policy is more effective in affecting real variables like real GDP.

Accepted Answer

Following a monetary rule often implies adhering to a predetermined path for monetary policy (like targeting a specific inflation rate or money supply growth rate), which can make policy more predictable but does not inherently increase its effectiveness in affecting real variables like real GDP in the short term, as these are influenced by a variety of factors beyond monetary policy alone.

Question 13

The workers' perceived real wage rate is:
A)their nominal wage rate divided by the actual price level.
B)the actual price level divided by their nominal wage rate.
C)their nominal wage rate divided by the expected price level.
D)the expected price level divided by their nominal wage rate.

Accepted Answer

The answer of The workers' perceived real wage rate is:
A)their...

Question 14

The real effect of a given monetary shock is larger the more stable the underlying monetary environment.

Accepted Answer

This is known as the "shock amplification" effect, whereby a given monetary shock has a larger impact on the economy if the underlying monetary environment is less stable or more volatile. This is because the shock disrupts the normal functioning of the economy, causing more significant changes in interest rates, exchange rates, and other key variables. In contrast, a stable monetary environment is less sensitive to individual shocks and is better able to absorb them without causing significant disruptions.

Question 15

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:
A)€10.
B)€2.50.
C)€2.
D)none of the above.

Accepted Answer

The real wage rate is calculated by dividing the nominal wage by the price level. In this case, the nominal wage is €10 and the actual price level is 4. Therefore, the real wage rate is €10/4 = €2.50.

Question 16

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:
A)€10.
B)€5.
C)€2.50.
D)none of the above.

Accepted Answer

The actual real wage rate is calculated by dividing the nominal wage by the actual price level. Therefore, €10 / 4 = €2.50.

Question 17

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then:
A)the expected real wage rate is greater than the actual real wage rate.
B)the expected real wage rate is less than the actual real wage rate.
C)the expected real wage rate is greater than the actual nominal wage rate.
D)the actual real wage rate is greater than the actual nominal wage rate.

Accepted Answer

The expected real wage rate is calculated as the nominal wage divided by the expected price level (€10/5 = €2 per hour), while the actual real wage rate is the nominal wage divided by the actual price level (€10/4 = €2.5 per hour). Therefore, the expected real wage rate is less than the actual real wage rate.

Question 18

If the nominal wage rises from €10 per hour in period 1 to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:
A)the nominal wage is falling.
B)the expected real wage is falling.
C)the actual real wage is falling.
D)all of the above.

Accepted Answer

The expected real wage is calculated by dividing the nominal wage by the expected price level. In period 1, it is €10/1 = €10, and in period 2, it is €15/3 = €5, indicating a fall.

Question 19

If the actual price level is above the expected price level, then workers' actual real wage will be below their expected real wage.

Accepted Answer

When the actual price level is above the expected price level, the money wage (nominal wage) does not adjust immediately, leading to a decrease in the purchasing power of the wages workers receive. Consequently, their actual real wage is lower than what they anticipated based on their expected price level.

Question 20

We would expect households to have the most complete information about:
A)their own wage rate.
B)the wage rate available on other jobs.
C)products purchased occasionally like an automobile.
D)all of the above.

Accepted Answer

Households have direct knowledge of their own wage rate as they receive their paycheck or are aware of their negotiated salary. On the other hand, they may not have complete information about the wage rates available on other jobs, and their knowledge regarding products purchased occasionally like an automobile may be limited based on their personal experiences and research.

Quiz 16: Money and Business Cycles I: the Price-Misperceptions Model

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual nominal wage rate is:

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then expected real wage rate is:

If households misperceive prices, they may change real decisions in response to changes in the money supply in the long run.

Money can only effect real variables in the short run, if people expect the increase in the money supply.

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then actual nominal wage rate is:

We would expect households to have the most complete information about:

If the nominal wage rises from €10 per hour in period one to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:

We would expect households to have incomplete information about:

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then:

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then expected real wage rate is:

We would expect households to have incomplete information about:

If monetary authorities follow a monetary rule, then monetary policy is more effective in affecting real variables like real GDP.

The workers' perceived real wage rate is:

The real effect of a given monetary shock is larger the more stable the underlying monetary environment.

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:

If the nominal wage is €10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:

If the nominal wage is €10 per hour and the expected price level is 5 and the actual price level is 4, then:

If the nominal wage rises from €10 per hour in period 1 to €15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:

If the actual price level is above the expected price level, then workers' actual real wage will be below their expected real wage.

We would expect households to have the most complete information about: