Unit 4 Problem Set Rubric

Question 1

Question #1 A. Financial Sector 1 Point- Definition of barter 1 Point- Definition of commodity money 1 Point- Definition of fiat money 1 Point- Definition of stocks 1 Point- Definition of bonds

Question #1 B. Money Demand 2 Point- Definition of transaction demand 2 Point- Definition of asset demand 1 Point- Examples C. Banking 2 Point- Definition of reserve requirement 2 Point- Definition of money multiplier

Question #1 D. MPC and MPS 2 Point- Definition of fiscal policy 2 Point- Definition of monetary policy 1 Point- Examples

Question 2

Question #2 A. Money Market 1 Point- Money market graph 1 Point- Explanation why demand is downward sloping 1 Point- Interest rates and investment are inversely related 1 Point- Increase in money supply decreases the interest rate 1 Point- Aggregate demand increases

Question #2 B. Fiscal Policy 1 Point- Four correctly labelled graphs 1 Point- Decrease on money supply on money market graph 1 Point- Decrease in investment demanded 1 Point- Decrease in AD 1 Point- Movement down the short-run Phillips curve

Question 3

Question #3 A. Fiscal vs. Monetary Policy 1 Point- Expansionary fiscal policies 1 Point- Expansionary monetary policies 1 Point- Decrease reserve requirement 1 Point- Decrease discount rate 1 Point- Central bank buys bonds

Question #3 B. Fiscal vs. Monetary Policy 1 Point- Increase reserve requirement 1 Point- Increase discount rate 1 Point- Central bank sells bonds 2 Point- The Central bank might be called to fight inflation because fiscal policies to fight inflation are not preferred by the voting public. (It is hard to get reelected when politicians increase taxes or decrease government spending)

Question 4

Question #4 A. Loanable Funds 1 Point- Loanable funds graph 1 Point- Increase in the demand for loans 1 Point- Increase in the real interest rate 1 Point- Definition of crowding out 1 Point- Higher interest rates decreased investment and consumption so the fiscal policy doesn’t fully close the gap

Question #4 B. Loanable Funds 1 Point- Loanable funds graph 1 Point- Increase in the demand for loans 1 Point- Increase in the real interest rate 1 Point- Definition of crowding out 1 Point- Higher interest rates decreased investment and consumption so the fiscal policy doesn’t fully close the gap

Question 5