3. The classical dichotomy and the neutrality of money

Theclassical dichotomyis the separation of real and nominal variables. The following questions test your understanding of this distinction.

Yvette spends all of her money on magazines and mandarins. In 2015, she earned $14.00 per hour, the price of a magazine was $7.00, and the price of a mandarin was $2.00.

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

1) The price of a mandarin is 0.29 magazines in 2015.

2) Yvette's wage is 2 magazines per hour in 2015.

3) The price of a mandarin is $2.00 in 2015.

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

1) The price of a magazine is $7.00 in 2015.

2) Yvette's wage is $14.00 per hour in 2015.

3) the price of a magazine is 3.5 mandarins in 2015.

Suppose that the Fed sharply increases the money supply between 2015 and 2020. In 2020, Yvette's wage has risen to $28.00 per hour. The price of a magazine is $14.00 and the price of a mandarin is $4.00.

In 2020, the relative price of a magazine is _____

Between 2015 and 2020, the nominal value of Yvette's wage______ , and the real value of her wage ______

Monetary neutrality is the proposition that a change in the money supply_____ nominal variables and _____real variables.