Unit 2 Problem Set Rubric

Question #1

Problem Set #2 A. GDP 1 Point-Basic Definition of GDP 5 Points Possible A. GDP 1 Point-Basic Definition of GDP 1 Point- Includes three parts : Dollar Value of Final Goods Produced in One Year 1 Point- Not Included- Intermediate goods, financial transactions, and Illegal goods 1 Point- Four components (C+I+G+Xn) 1 Point- Examples for EACH Component

Problem Set #2 B. Nominal vs. Real 5 Points Possible B. Nominal vs. Real 1 Point-Nominal GDP includes inflation 1 Point- Real GDP adjusts for inflation (inflation is taken out) 1 Point- Example uses numbers 1 Point- Example shows nominal GDP (output x “today’s” prices) 1 Point- Example shows real GDP (output x “base year” prices)

Question #2 Unemployment

Problem Set #2A 5 Points Possible Definitions (3 points) 1 Point- Definition of frictional unemployment 1 Point- Definition of structural unemployment 1 Point- Definition of cyclical unemployment Examples (2 Points) 2 Points- Clear examples for EACH type

Problem Set #2B 5 Points Possible Definitions (3 points) 1 Point- Equation for unemployment rate 2 Point- Definition Natural Rate of Unemployment. No Cyclical Unemployment. 2 Point- Don’t want 0% unemployment because there will always be frictional and structural.

Question #3 Inflation

Problem Set #3A 5 Points Possible

Problem Set #3B 5 Points Possible 1 Point- Define demand pull inflation Increase in the costs of production drives up prices 1 Point- Define cost push inflation Increase in demand, but no increase in production leads to inflation 1 Point- Define velocity of money 1 Point- Show the quantity theory of money M x V = P x Y 1 Point- Explain that increasing M will have the same increase in P (when V and Y are constant)

Problem Set #3C 5 Points Possible B. Real vs. Nominal Interest Rates 1 Point- Define nominal interest rates Nominal Interest Rate = Real + inflation 1 Point- Define real interest rates. Real Interest Rate = Nominal - inflation 1 Point- real interest rate falls Interest Rate 5% and inflation is 10% 1 Point- real stays the same Interest Rate 5% and inflation is 5% 1 Point- real interest rate increases. Interest Rate 10% and inflation is 5%