Sample Essay2 rubric

1. Are the gold nuggets money in both the Pine Gulch story and the Mike Ortiz story?

No. Money can be anything that is widely accepted as a medium of exchange. In the days of Pine Gulch gold nuggets were widely accepted in transactions. Today, gold nuggets are not longer used as a medium of exchange. Would a retail store accept gold nuggets?

2. When Ortiz sells his gold nuggets for $10,000 has the money supply expanded? Explain.

No. The $10,000 that Mike receives is already part of the money supply

3. How does money expansion occur in Mike Ortiz’s time?

In addition to new money being put into circulation by the Fed, money expansion occurs through the lending process.

4. Given your analyis of what happened to Ortiz’s $10,000 and rounding to the next highest thousand, how much additional money was created by Ortiz’s deposit?

The total money including Mike’s $10,000 is $25,000. Subtracting the $10,000 that was already in the money supply, an additional $15,000 was added.

Note: if students had continued the process through deposits 11, 12 etc. they would have reached the sum total of $25,000. Also the banking multiplier with a 40% reserve requirement is 1/.40=2.5 therefore, $10,000 * 2.5 = $25,000. Don’t forget the original $10,000 is already in the money supply

5. What two changes in the money creation spreadsheet would lead to less money creation? Do not include a change in reserve requirement.

If the banks did not lend all of their excess reserves money creation would be lessened. Also, if borrowers kept some of the money they borrowed as cash, less would be deposited and money creation would be less.