3. The classical dichotomy and the neutrality of money The classical dichotomy is the separation of real and nominal variables. The following questions test your understanding of this distinction. Frances spends all of her money on magazines and mandarins. In 2015, she earned $15.00 per hour, the price of a magazine was $5.00, and the price of a mandarin was $3.00. Which of the following give the nominal value of a variable? Check all that apply. Frances's wage is 3 magazines per hour in 2015. The price of a mandarin is 0.6 magazines in 2015. Frances's wage is $15.00 per hour in 2015. Which of the following give the real value of a variable? Check all that apply. Frances's wage is $15.00 per hour in 2015. The price of a magazine is $5.00 in 2015. Frances's wage is 5 mandarins per hour in 2015. Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Frances's wage has risen to $30.00 per hour. The price of a magazine is $10.00 and the price of a mandarin is $6.00. In 2020, the relative price of a magazine is Between 2015 and 2020, the nominal value of Frances's wage , and the real value of her wage Monetary neutrality is the proposition that a change in the money supply variables. nominal variables and real

3. The classical dichotomy and the neutrality of money

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

Frances spends all of her money on magazines and mandarins. In 2015, she earned $15.00 per hour, the price of a magazine was $5.00, and the price of a mandarin was $3.00.

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

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

Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Frances's wage has risen to $30.00 per hour. The price of a magazine is $10.00 and the price of a mandarin is $6.00.

In 2020, the relative price of a magazine is __0.6 mandarins/ 0.6 mandarins/$6.00/ $10.00__ .

Between 2015 and 2020, the nominal value of Frances's wage _decreases/increases/ remains the same__ , and the real value of her wage _decreases/increases/ remains the same__ .

Monetary neutrality is the proposition that a change in the money supply _does not affect/ affects_nominal variables and_does not affect/ affects_ real variables.