Question

Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes:

Answer 1

Answer:

Long run.

Explanation:

According to economics theory, real and nominal variables are essentially determined separately in the long run.

An economic variable (GDP, wages, income, ...) is expressed in nominal terms if its valuation is made at market prices, that is, at prices of the current period.

On the other hand, a real magnitude is expressed in real terms when its valuation is made at prices of one base year. In this sense, prices are set with the objective of observing the growth or decrease of a given variable over time.

Therefore, the relationship between a nominal and real magnitude is established through prices. To measure prices, indices are used, which are constructed with respect to a base year. The CPI, the GDP Deflator or the Industrial Price Index are examples of price indices.