1. Unit 2 Problem Set Rubric

2. Question #1

3. 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

4. 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)

5. Question #2 Unemployment

6. 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

7. 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.

8. Question #3 Inflation

9. Problem Set #3A
5 Points Possible

10. 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)

11. 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%