Menu Costs – Principles of Macroeconomics Exam 2

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The distinction between price confusion problems and menu costs is that
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Price Index, Real Wages, Menu Costs, Principles of Macroeconomics Exam 2

The key terms in this Principles of Macroeconomics course include Price Index, Real Wages, Menu Costs, Price Confusion, Inflation, Principles of Macroeconomics Exam 2


You are offered two jobs, one in Chicago paying $67,000 and one in Dallas paying $58,000. The price index in Chicago is 110.8, and in Dallas it is 91.5. If real wages are the only consideration, then you would

definitely take the job in Dallas because the real wage is higher there.

suffer from menu costs and be conflicted.

definitely take the job in Chicago because the real wage is higher there.

be indifferent between the two jobs because the real wages would be about the same (within 2 percent).

suffer from money illusion and be conflicted.


The distinction between price confusion problems and menu costs is that

price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs relate to producers changing prices, typically during inflationary periods.

price confusion results from confusion between relative demand and inflationary pressures, whereas menu costs have to do with people confusing changes in nominal and real wages.

menu costs result from confusion between relative demand and inflationary pressures, whereas price confusion has to do with people confusing changes in nominal and real wages.

menucosts only affect the food industry, whereas price confusion problems occur in high-tech industries.

menucosts occur during deflation, whereas price confusion problems occur during inflation.


If a bank expects inflation to increase in the near future, how will it respond?

It will start charging more interest on loans.

It will temporarily scale back its efforts to gain new customers.

It will start paying less interest on deposits.

It will seek to reduce the amount of cash held in its vaults.

It will temporarily suspend withdrawals.


If Robert was earning $10,000 and now earns $11,500, then

Robert’s real wage has increased, but we can’t tell about his nominal wage.

Robert’s real income must have risen.

Robert could experience menucosts if the items on the “value menu” increase in price.

Robert could suffer from money illusion if prices increase by 15 percent or more.

Robert will be confused about relative price increases and inflation.