Unit 4 Problem Set Rubric

Question 1

Question #1A. Financial Sector1 Point- Definition of barter1 Point- Definition of commodity money1 Point- Definition of fiat money1 Point- Definition of stocks1 Point- Definition of bonds

Question #1B. Money Demand2 Point- Definition of transaction demand2 Point- Definition of asset demand1 Point- Examples

C. Banking2 Point- Definition of reserve requirement2 Point- Definition of money multiplier1 Point- Examples

Question #1D. MPC and MPS2 Point- Definition of fiscal policy2 Point- Definition of monetary policy1 Point- Examples

Question 2

Question #2A. Money Market1 Point- Money market graph1 Point- Explanation why demand is downward sloping1 Point- Interest rates and investment are inversely

related1 Point- Increase in money supply decreases the interest

rate1 Point- Aggregate demand increases

Question #2B. Fiscal Policy1 Point- Four correctly labelled graphs1 Point- Decrease on money supply on money market

graph 1 Point- Decrease in investment demanded1 Point- Decrease in AD1 Point- Movement down the short-run Phillips curve

Question 3

Question #3A. Fiscal vs. Monetary Policy1 Point- Expansionary fiscal policies1 Point- Expansionary monetary policies1 Point- Decrease reserve requirement1 Point- Decrease discount rate1 Point- Central bank buys bonds

Question #3B. Fiscal vs. Monetary Policy1 Point- Increase reserve requirement1 Point- Increase discount rate1 Point- Central bank sells bonds2 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 #4A. Loanable Funds1 Point- Loanable funds graph1 Point- Increase in the demand for loans1 Point- Increase in the real interest rate1 Point- Definition of crowding out1 Point- Higher interest rates decreased investment and

consumption so the fiscal policy doesn’t fully close the gap

Question #4B. Loanable Funds1 Point- Loanable funds graph1 Point- Increase in the demand for loans1 Point- Increase in the real interest rate1 Point- Definition of crowding out1 Point- Higher interest rates decreased investment and

consumption so the fiscal policy doesn’t fully close the gap

Question 5