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96. Economic variables whose values are measured in goods are called
a. dichotomous variables.
b. nominal variables.
c. classical variables.
d. real variables.
97. The price level is a
a. relative variable.
b. dichotomous variable
c. real variable.
d. nominal variable.
7390 Money Growth and Inflation
98. Nominal GDP measures
a. the total quantity of final goods and services produced.
b. the dollar value of the economy‘s output of final goods and services.
c. the total income received from producing final goods and services measured in constant dollars.
d. the overall level of prices.
99. On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.
a. The $80 is a real variable. The quantity of shoes is a nominal variable.
b. The $80 is a nominal variable. The quantity of shoes is a real variable.
c. Both the $80 and the quantity of shoes are nominal variables.
d. Both the $80 and the quantity of shoes are real variables.
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100. On a Sunday morning, Tom sold 300 cups of coffee for a total of $750.
a. The $750 is a nominal variable. The 300 cups of coffee is a real variable.
b. The $750 is a real variable. The 300 cups of coffee is a nominal variable.
c. Both the $750 and the 300 cups of coffee are nominal variables.
d. Both the $750 and the 300 cups of coffee are real variables.
101. The price of a Honda Accord
a. and the price of a Honda Accord divided by the price of a Honda Civic are both real
variables.
b. and the price of a Honda Accord divided by the price of Honda Civic are both nominal
variables.
c. is a real variable, and the price of a Honda Accord divided by a Honda Civic is a nominal
variable.
d. is a nominal variable and the price of a Honda Accord divided by the price of a Honda Civic
is a real variable.
7392 Money Growth and Inflation
102. The payments you make on your automobile loan are given in terms of dollars. As prices rise you
notice you give up fewer goods to make your payments.
a. The dollar amount you pay is a nominal value. The number of goods you give up is a real
value.
b. The dollar amount you pay is a real value. The number of goods you give up is a nominal
value.
c. Both the dollar amount you pay and the goods you give up are nominal values.
d. Both the dollar amount you pay and the goods you give up are real values.
103. When shopping you notice that a pair of jeans costs $20 and that a tee-shirt costs $10. You
compute the price of jeans relative to tee-shirts.
a. The dollar price of jeans and the relative price of jeans are both nominal variables.
b. The dollar price of jeans and the relative price of jeans are both real variables.
c. The dollar price of jeans is a nominal variable; the relative price of jeans is a real variable.
d. The dollar price of jeans is a real variable; the relative price of jeans is a nominal variable.
Money Growth and Inflation 7393
104. An associate professor of physics gets a $200 a month raise. She figures that with her new
monthly salary she can buy more goods and services than she could buy last year.
a. Her real and nominal salary have risen.
b. Her real and nominal salary have fallen.
c. Her real salary has risen and her nominal salary has fallen.
d. Her real salary has fallen and her nominal salary has risen.
105. An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new
monthly salary he cannot buy as many goods and services as he could buy last year.
a. His real and nominal salary have risen.
b. His real and nominal salary have fallen.
c. His real salary has risen and his nominal salary has fallen.
d. His real salary has fallen and his nominal salary has risen.
7394 Money Growth and Inflation
106. Your boss gives you an increase in the number of dollars you earn per hour. This increase in pay
makes
a. your nominal wage increase. If your nominal wage rose by a greater percentage than the
price level, then your real wage also increased.
b. your nominal wage increase. If your nominal wage rose by a greater percentage than the
price level, then your real wage decreased.
c. your real wage increase. If your real wage rose by a greater percentage than the price level,
then your nominal wage also increased.
d. your real wage decrease. If your real wage rose by a greater percentage than the price level,
then your nominal wage decreased.
107. In 1975 tuition at Wattsomata University was $2,500 and the consumer price index was 80. In
2011 tuition was $12,000 and the price index was 320. Which of the following is correct?
a. Nominal and real tuition were both higher in 1975.
b. Nominal and real tuition were both higher in 2011.
c. Nominal tuition was higher in 1975, real tuition was higher in 2011.
d. Nominal tuition was higher in 2011, real tuition was higher in 1975.
Money Growth and Inflation 7395
108. Last year, Jane spent all of her income to purchase 200 units of corn at $5 per unit. This year,
she spent all of her income to purchase 180 units of corn at $6 per unit.
a. Jane’s nominal income and real income decreased this year.
b. Jane’s nominal income decreased this year, but her real income increased.
c. Jane’s nominal income and real income increased this year.
d. Jane’s nominal income increased this year, but her real income decreased.
109. Your nominal wage increases from $12 per hour to $13 per hour. At the same time, the price
level increases from 140 to 147. As a result,
a. The number of dollars you receive increases and the purchasing power of the dollars you
receive increases.
b. The number of dollars you receive increases and the purchasing power of the dollars you
receive decreases.
c. The number of dollars you receive decreases and the purchasing power of the dollars you
receive increases.
d. The number of dollars you receive decreases and the purchasing power of the dollars you
receive decreases.
7396 Money Growth and Inflation
110. Last year, you earned a nominal wage of $10 per hour and the price level was 120. This year
your nominal wage is $11 per hour, but you are unable to purchase the same amount of goods as
last year. The price level this year must be
a. 135
b. 132
c. 125
d. 121
111. Suppose the price level rises, but the number of dollars you are paid per hour stays the same.
This means that your
a. nominal wage is higher.
b. nominal wage is lower.
c. real wage is higher.
d. real wage is lower.
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112. Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In
other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she
believes that her
a. nominal income and real income increased.
b. nominal income increased, but their real income decreased.
c. nominal income and real income decreased.
d. nominal income decreased, but their real income increased.
113. You find that to attract a sufficient number of workers you have to pay them more dollars. Given
the price of your output you determine you are paying your workers more in goods than before.
Which of the following has risen?
a. The real and nominal value of the wages you pay.
b. The real but not the nominal value of wages you pay.
c. The nominal but not the real value of the wages you pay.
d. Neither the real nor the nominal value of the wages you pay.
7398 Money Growth and Inflation
114. Suppose each good costs $5 per unit and Megan holds $40. What is the real value of the money
she holds?
a. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to
hold more dollars.
b. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings
she needs to hold more dollars.
c. $40. If the price of goods rises, to maintain the real value of her money holdings she needs to
hold fewer dollars.
d. 8 units of goods. If the price of goods rises, to maintain the real value of her money holdings
she needs to hold fewer dollars.
115. Suppose every good costs $8 per unit and Molly holds $120. What is the real value of the money
she holds?
a. $120. If the price of goods rises, to maintain the real value of her money holdings she needs to
hold more dollars.
b. $120. If the price of goods rises, to maintain the real value of her money holdings she needs to
hold fewer dollars.
c. 15 units of goods. If the price of goods rises, to maintain the real value of her money holdings
she needs to hold more dollars.
d. 15 units of goods. If the price of goods rises, to maintain the real value of her money holdings
she needs to hold fewer dollars.
Money Growth and Inflation 7399
116. Suppose ice cream cones costs $3. Molly holds $60. What is the real value of the money she
holds?
a. $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she
need to hold more dollars.
b. $60. If the price of ice cream cones rises, to maintain the real value of her money holdings she
need to hold fewer dollars.
c. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her
money holdings she needs to hold more dollars.
d. 20 ice cream cones. If the price of ice cream cones rises, to maintain the real value of her
money holdings she needs to hold fewer dollars.
117. On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted
rates
a. and a price index are both real variables.
b. and a price index are both nominal variables.
c. are real variables, and a price index is a nominal variable.
d. are nominal variables, and a price index is a real variable
7400 Money Growth and Inflation
118. Interest rates adjusted for the effects of inflation
a. and inflation are nominal variables.
b. and inflation are real variables.
c. are real variables; inflation is a nominal variable.
d. are nominal variables; inflation is a real variable.
119. You put money in the bank. The increase in the dollar value of your savings
a. and the change in the number of goods you can buy with your savings are both nominal
variables.
b. and the change in the number of goods you can buy with your savings are both real variables.
c. is a nominal variable, but the change in the number of goods you can buy with your savings is
a real variable.
d. is a real variable, but the change in the number of goods you buy with your savings is a
nominal variable.
Money Growth and Inflation 7401
120. Kelly puts money in a savings account. One year later she has two percent more dollars and can
buy three percent more goods. Kelly earned a real interest rate of
a. two percent and prices fell one percent.
b. two percent and prices rose one percent.
c. three percent and prices rose one percent.
d. three percent and prices fell one percent.
121. The 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 is called the
a. velocity concept.
b. Fisher effect.
c. classical dichotomy.
d. Mankiw effect.
7402 Money Growth and Inflation
122. The classical dichotomy refers to the idea that the supply of money
a. is irrelevant for understanding the determinants of nominal and real variables.
b. determines nominal variables, but not real variables.
c. determines real variables, but not nominal variables.
d. is a determinant of both real and nominal variables.
123. The classical dichotomy argues that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables.
124. According to the classical dichotomy, which of the following is affected by monetary factors?
a. nominal wages
b. the price level
c. nominal GDP
d. All of the above are correct.
Money Growth and Inflation 7403
125. According to the classical dichotomy, which of the following increases when the money supply
increases?
a. the real interest rate
b. real GDP
c. the real wage
d. the nominal wage.
126. According to the classical dichotomy, which of the following is influenced by monetary factors?
a. real GDP
b. unemployment
c. nominal interest rates
d. All of the above are correct.
7404 Money Growth and Inflation
127. According to the classical dichotomy, which of the following is influenced by monetary factors?
a. nominal wages
b. unemployment
c. real GDP
d. All of the above are correct.
128. According to the classical dichotomy, which of the following is influenced by monetary factors?
a. the real wage.
b. the real interest rate.
c. the nominal interest rate.
d. All of the above are correct.
Money Growth and Inflation 7405
129. According to the classical dichotomy, which of the following is not influenced by monetary
factors?
a. the price level
b. real GDP
c. nominal interest rates
d. All of the above are correct.
130. According to the classical dichotomy, which of the following is not influenced by monetary
factors?
a. unemployment
b. the price level
c. nominal interest rates
d. All of the above are correct.
7406 Money Growth and Inflation
131. According to the classical dichotomy, which of the following is not influenced by monetary
factors?
a. real GDP.
b. real wages.
c. real interest rates.
d. All of the above are correct.
132. Over time both real GDP and the price level have trended upward. Which of these trends would
the classical dichotomy say could be explained by an upward trend in the money supply?
a. both the upward trend in real GDP and the upward trend in the price level
b. the upward trend in real GDP but not the upward trend in the price level
c. the upward trend in the price level but not the upward trend in real GDP
d. neither the upward trend in the price level nor the upward trend in real GDP
Money Growth and Inflation 7407
133. Changes in nominal variables are determined mostly by the quantity of money and the monetary
system according to
a. both the classical dichotomy and the quantity theory of money.
b. the classical dichotomy, but not the quantity theory of money.
c. the quantity theory of money, but not the classical dichotomy.
d. neither the classical dichotomy nor the quantity theory of money.
134. According to the classical dichotomy, when the money supply doubles, which of the following
also doubles?
a. the price level and nominal wages
b. the price level, but not the nominal wage
c. the nominal wage, but not the price level
d. neither the nominal wage nor the price level
7408 Money Growth and Inflation
135. According to the classical dichotomy, when the money supply doubles which of the following
doubles?
a. the price level and nominal GDP
b. the price level and real GDP
c. only real GDP
d. only the price level
136. According to the classical dichotomy, when the money supply doubles, which of the following
also doubles?
a. the price level
b. nominal wages
c. nominal GDP
d. All of the above are correct.