Asked by Donna Gentry on Jul 30, 2024
Verified
According to the classical dichotomy, what changes nominal variables? What changes real variables?
Classical Dichotomy
The conceptual distinction between real and nominal variables within the economy, implying that alterations in the money supply solely impact nominal variables.
Nominal Variables
Variables measured in monetary terms that have not been adjusted for inflation, representing current prices.
Real Variables
Economic variables measured in physical units, reflecting quantities and qualities, rather than their monetary value, often adjusted for inflation.
- Describe how nominal and real variables differ and the impact of inflation on each.
Verified Answer
ZK
Zybrea KnightAug 04, 2024
Final Answer :
The classical dichotomy argues that nominal variables are determined primarily by developments in the monetary system such as changes in money demand and supply. Real variables are largely independent of the monetary system and are determined by productivity and real changes in the factor and loanable funds markets.
Learning Objectives
- Describe how nominal and real variables differ and the impact of inflation on each.