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
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
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.
|
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 __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.
Step by step
Solved in 7 steps with 1 images
