Suppose the price level increases by 5 percent and the nominal wages of workers increase by 3 percent during a particular year. This implies that the real wage has:
a. declined by 2 percent.
b. declined by 8 percent.
c. also increased by 2 percent.
d. also increased by 8 percent.
e. remained constant.
QUESTION 2
The opportunity cost of holding money increases when:
a. the interest rate rises.
b. the interest rate falls.
c. the price level falls.
d. nominal GDP rises.
e. nominal GDP falls.
QUESTION 3
Suppose the real wage remains unchanged between Year 1 and Year 2 but the nominal wage increases from 20 to 24 . Based on this information, we can conclude that the price level has:
a. increased by 20 percent.
b. increased by 25 percent.
c. remained unchanged.
d. decreased by 10 percent.
e. decreased by 20 percent.
QUESTION 4
The opportunity cost of holding money is measured by the:
a. interest rate.
b. liquidity lost by holding money.
c. money supply curve.
d. inflation rate.
e. cost of cashing in financial assets.
QUESTION 5
Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from 20 in Year 1 to 18 in Year 2 . This implies that the price level has:
a. increased by 20 percent.
b. increased by 25 percent.
c. remained unchanged.
d. fallen by 10 percent.
e. fallen by 20 percent.
QUESTION 6
The demand for money will be high in an economy experiencing:
a. a depression.
b. hyperinflation.
c. deflation.
d. a recession.
e. a sluggish population growth.
QUESTION 7
Identify the correct statement.
a. In periods of low inflation, real wages are constant but nominal wages decline.
b. If the price level increases, real wages will increase.
c. If the price level increases, nominal wages will fall.
d. In periods of high inflation, real wages change even if nominal wages remain constant.
e. If the inflation rate is high, real wages and nominal wages change by the same amount.