Week 11 — Monetary Policy Report: From a Bond Trade to Aggregate Demand

Assignment 10 of the term — trace four links of the transmission mechanism with the course's numbers, explain what each figure means, and tell a relative how a central-bank rate cut could, or could not, reach a small business.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, checkable report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. In Week 5 you shifted aggregate demand, in Week 7 you used the spending multiplier, and in Week 10 you watched the Fed's bond trades set an interest rate in the money market; this week you connect those pieces into one chain. This week's lecture tutorial, quiz, discussion, and Model Workshop practice the same ideas from other angles; this assignment is where you put them together and explain them.

The task

This report uses the week's illustrative numbers, constructed for this course and not real data: a money market where money demand is 1,200 minus 25 times the interest rate and the money supply starts at 1,050 dollars, so the rate starts at 6 percent; the course's engineered rule that investment changes 20 billion dollars for each one-point change in the rate; and a marginal propensity to consume of 0.8.

Work these four problems, showing every step on its own line:

1. In the illustrative money market, money demand is 1,200 minus 25 times the interest rate r, in percent, and the Fed buys bonds so the money supply rises to 1,100 dollars. What is the new interest rate, in percent?
2. In the same illustrative economy, the interest rate falls from 6 percent to 4 percent, and investment rises 20 billion dollars for each one-point fall. By how much does investment change, in billions of dollars?
3. In the same illustrative economy, investment rises by 40 billion dollars and the marginal propensity to consume is 0.8. By how much does aggregate demand shift right at the old price level, in billions of dollars?
4. In the same illustrative economy, the Fed instead sells bonds and the interest rate rises from 6 percent to 8 percent. With investment falling 20 billion dollars for each one-point rise and a marginal propensity to consume of 0.8, by how much does output change at the old price level, in billions of dollars?

Beside each figure, add one brief interpretation in plain words. For problem 1, say what the new rate means for borrowers, and why buying bonds loosens policy rather than tightening it. For problem 2, say what the change in investment means, and why business equipment and new homes count as interest-sensitive spending. For problem 3, say what the shift of aggregate demand means for the price level and real output, and why the spending multiplier, not the money multiplier, belongs on this link. For problem 4, name the direction of every link in the contractionary chain, from the money supply to aggregate demand.

Explain it to a non-expert

A relative who runs a small landscaping business hears on the radio that the central bank cut interest rates, and asks whether that means more customers next month. Write a 3–5 sentence message your relative could follow: how a lower rate could travel through borrowing and spending to reach a business like theirs, which link of the chain their customers sit on, and one honest limit, such as the lags before spending responds or the chance that people who expect hard times will not borrow anyway. Explain any technical term in everyday words. More than one good limit can be defended.

For a different, ungraded example, imagine a city that cuts downtown parking fees to bring shoppers back, and a café owner who asks whether sales will rise. Model message: "Cheaper parking makes a trip downtown cost less, so some people who were staying home will drive in. More visitors means more people walking past your door, and some of them will stop for coffee. That is a chain, and each step has to happen for the next one to matter. It may take a few months for habits to change, and if people are worried about their jobs, cheaper parking alone may not bring them out."

Use that pattern for the central bank's rate cut, with your own explanation.

Here is one honest note about scope: every number in this assignment is illustrative, so do not add a real interest rate, a real investment figure, or a length for the lags from the news. The engineered rule of 20 billion dollars per point is built for this course; real responses vary and are debated, which is why this report keys only on the model's numbers.

Part 1 — Student instructions

1. Draft all four figures, the four brief interpretations, and your message for the relative before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Answer in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was right.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the report for you.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach. Draw out and challenge MY thinking about monetary policy: the money market, the five links of the transmission mechanism, interest-sensitive spending, the spending multiplier 1 / (1 - MPC) in the output link, the money multiplier 1 / RR kept in the first link, the shift of aggregate demand, and contractionary policy with every arrow reversed. Do not write my assignment for me and do not invent work I did not show.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. Every number is illustrative, constructed for my course, not real data. The data: money demand is 1,200 minus 25 times the interest rate, in percent; the money supply starts at 1,050 dollars, so the rate starts at 6 percent; investment changes 20 billion dollars for each one-point change in the rate (the course's engineered rule); the marginal propensity to consume is 0.8.
PROBLEM P1: In the illustrative money market, money demand is 1,200 minus 25 times the interest rate r, in percent, and the Fed buys bonds so the money supply rises to 1,100 dollars. What is the new interest rate, in percent?
PROBLEM P2: In the same illustrative economy, the interest rate falls from 6 percent to 4 percent, and investment rises 20 billion dollars for each one-point fall. By how much does investment change, in billions of dollars?
PROBLEM P3: In the same illustrative economy, investment rises by 40 billion dollars and the marginal propensity to consume is 0.8. By how much does aggregate demand shift right at the old price level, in billions of dollars?
PROBLEM P4: In the same illustrative economy, the Fed instead sells bonds and the interest rate rises from 6 percent to 8 percent. With investment falling 20 billion dollars for each one-point rise and a marginal propensity to consume of 0.8, by how much does output change at the old price level, in billions of dollars?
After the four figures, I must briefly interpret each one: for P1, what the new rate means for borrowers and why a bond purchase loosens policy rather than tightening it; for P2, what the change in investment means and why business equipment and new homes count as interest-sensitive spending; for P3, what the shift means for the price level and real output and why the spending multiplier, not the money multiplier, belongs on this link; for P4, the direction of every link in the contractionary chain. I must then write a 3-5 sentence message for a relative who runs a small landscaping business, explaining how a rate cut could reach a business like theirs, which link their customers sit on, and one honest limit.

SCORING CRITERIA: Score only evidence I supply: correct monetary-policy computations (40 points), reasoning about the transmission chain and aggregate demand (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computation points, 4 reasoning points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message for the relative only with P4.
COMPUTATION UNITS: A correct new interest rate, change in investment, shift of aggregate demand, or contractionary change in output = 2; the right values and operation with only an arithmetic slip = 1; a missing figure or the wrong values or operation, such as using the money multiplier on the investment change, skipping the investment link, or giving the contractionary change the wrong sign, = 0. Do not penalize an alternative valid method or equivalent notation.
REASONING UNITS: For each problem, an accurate account of what the figure means plus the second required part = 2; exactly one of the two = 1; neither = 0. The second parts: P1, why a bond purchase loosens policy; P2, why equipment and new homes are interest-sensitive spending; P3, what happens to the price level and real output and why the spending multiplier belongs on this link; P4, the direction of every link in the contractionary chain, with the message for the relative. An arithmetic slip alone is not a reasoning error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to economics, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message for the relative with P4. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable values and steps = 2; a relevant but incomplete value or step = 1; a figure alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work. Never bring in a real interest rate, a real investment figure, or a length for the lags, and never take a side on whether a central bank ought to fine-tune or follow a rule.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word answer is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four figures and their brief interpretations AND written my message for the relative AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised monetary-policy report, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised monetary-policy report with all four figures, their brief interpretations, and your message for the relative — written, or recorded as audio or video with a transcript, or as a labelled sketch of the money market and the aggregate demand shift with a short note; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 11 skills — tracing the transmission mechanism from the money market to aggregate demand: finding the new interest rate after a bond purchase, sizing the change in investment with the course's rule, sizing the shift of aggregate demand with the spending multiplier while keeping the money multiplier in its own link, and reversing every link for contractionary policy — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, and the message for the relative. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have. Submit the revised monetary-policy report, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it supply a real interest rate or investment figure. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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