How are the nominal and real demands for money related to changes in the price level?
What will be an ideal response?
When the price level rises the nominal demand for money increases by the same proportion. For example if the price level rises 5 percent, people demand 5 percent more nominal money so that they can continue to purchase the same quantity of goods and services. The nominal demand is measured in number of dollars. The real demand is the quantity of money measured in constant dollars. This amount does not change when the price level rises. The quantity of real money demanded is independent of the price level.
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A tax wedge is ________
A) the difference between the tax rate on income and capital gains B) equal to the difference between what people earn before and after taxes are accounted for C) the size of the decrease in labor force participation when labor income is taxed D) the difference between the rate on Treasury securities and the income tax rate
Falling transportation costs in the 19th century
a. fostered regional specialization according to comparative advantage. b. created increasing lags for price declines along the Mississippi. c. propelled the process of western expansion. d. All of the above. e. Both a and c are correct.