Final Exam

Final Exam - Economics 107 Final Examination in... March...

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Unformatted text preview: Economics 107 Final Examination in... March December 14, 2005 mw‘pw )Q' [There are 15 pages to this exam on 8 sheets. Check that you have all the sheets. Note there are always 5 options to any multiple choice question. i sometimes put two or more options on One line to save paper. Save this examination paper as you can check your answers on the Website. The answers will be available Tuesday, March 22nd at 3 p.m.] WARNING: Experience shows that if you make an erasure on your Scantron, you run the risk that the optical scanner - which is very sensitive - will score your answer incorrectly. For obvious reasons, I am going to take the optical scanner ’5 grading as final. So don ’t make erasures. Hint: score your answers on this examination paper , and then transfer them to your .S'cantron when you have completed your work. There are a few blank Scantrons available in the room for 25 cents. Prof M. ‘4'. Some of the actual historical preconditions for the emergence of the economics paradigm were: a. there had been a sufficient rise in economic complexity to attract social attention. 1). Newton had inspired thinkers like Home and Smith to see an order in society akin to the order in Nature that the former had described. c. - if we accept Polyani’s thesis - markets had become dis-embedded so that their operatio was highly visible“ 1 there had been a secularization of economic thought so that the question of the optimization of wealth could be seen 9- as a pragmatic moral issue rather than one which past moral thought had already provided indisputable and , . definitive conclusions about. . ®I of the above. 2. We ca view Smith as the inventor of the first paradigm because: a. Richard Cantilion whom Jevons thought was the first great economist never formed a school to continue his work nor did it have the full scope of Smith’s work. b. David Hume to whom we are indebted for the price-specie flow mechanism and early comet thoughts on monetary equilibrium - he anticipated post WW 11 discussions on the Phillips Curve - failed to get a University chair, 61‘ was positively disliked in his own time, and his work did not have the full scope of Smith’s work. c. Smith, in addition to having an analysis of how cquiilbria is reached in particular markets, also through his discussion of the Law of Equal Returns foreshadowed the idea of gen] equilibrium \ ll of the above. None of the above. 3. Prof M. said that, as far as he knows at the moment, the first person to identify the “economic system” using those specific words was: a. Adam Smith. d b. Francois Quesnay. Of course the words were in French. .‘David Hume. @tAtoine Augusti Cournot in 1838. Of course the words were in French. e. Baron Justus von Leibig. Of course the words were in German. / '4. Maithus thought that: “at. population grew by an exponential progression while food supply only grew by a geometric progression thus creating more months to feed than food to do this. 6‘ \both food and population grew exponentially so the major problem for everyone was a huge world population that would create enormous negative externalities such as smog, pollution, destruction of species, and destruction of the rain forest. c. increases in population led to failures in eii’ective demand and the business cycle that followed would lead to the ‘ death of many in the population. it his first edition] population would be regulated by positive checks - wars, famines, disease and similar disasters and negative checks - lowering of the birthratc due to postpoement of marriage. e. none of the above. - 5. Pinkerton notes that as Malthus grew older this thought developed and by the time of his Principles of ' Population [1820]: g ' he became progressively more pessimistic about the possibility of Earth supporting the potential population d - e acknowledged that economic growth would improve the prospects of the population. . he came to agree with Nassau Senior that “the population of the world is limited only by moral and physical evil. or by the fear of a deficiency of those articles of Wealth which the habits of individuals of each class of its inhabitants lead them to require. d. none of the above. e. all of the above. J. What is wrong with Malthus’s belief that population increases by a particular progression is: . Malthus is just wrong that the only checks to population are (a) starvation, wars, and (b) abstention from sex. b. some countries with developed economies have actually experienced population decline. c. if what Malthus said was true, it Would not take many generations before the size of the world population would“ , 9' be staggerineg large [e.g. We would go from 5 billion to 160 billion in 6 generations. d. as countries develop economically their populations begin to increase at a decreasing rate. In other words, if we plot population growth as a function of development time, what we get is the logistic curve. @ll oi‘ the above. ,7. Samuelson’s diagram on the demographic transition divides population growth into, / . four stages each stage being described by on of Nassau Senior’s four basic laws. b (@a first stage with high birth and death rates, transitional stages, and a final stage with loWer birth and death rates. c. a stage of mature society which due to population growth collapses [like Jared Diamond has described] totally so that no population can be supported due to environment degradation. Easter Island is a fine example of this. (1. free enterprise sooieties population growth and Communist bloc population growth. e. All of the above. '3 8. Nassau Senior thought that his four fundamental propositions were: 2. these clearly stated by Adam Smith in the Wealth of Nations. d b. those clearly stated by David Ricardo in Principles of Political Economy and Taxation. Gall a matter of observation except the first which was a matter of consciousness! d. [a] and [c]. @1 and [c]. 9. Prof M. said that if we consider two countries that have linear production possibility functions [production frontiers, transformation functions] describing alternative combinations of two outputs, then: a. absolute advantages will be revealed by the x and y-intercept values. 45. comparative advantage will be revealed by the relative slopes of the two functions. Q ./c. if two countries have identically sloped linear production possibility functions, th no trade will take place. d. absolute advantage is relevant to the wealth of a country and irrelevant to whether trade will take place. ll of the above. \._ 10. Portugal can produce 500 wheat or 500 wine. England can produce 100 wheat or 300 wine. Va. Portugal has absolute advantages in the production of wheat only. ‘11. Portugal has absolute disadvantage in the production of both wheat and wine. Q \5. Portugal will not trade as it can out produce England. ‘Wfid 4W ‘ M N . Portugal has a comparative advantage in wine. “ one of the above. 2; Wk - ti. Ricardo’s own analysis of international trade is based on an example that has England needing 100 men years to produce cloth and 120 men years to produce wine. Portugal, on the other hand. requires only 90 men years to produce cloth and 80 men years to produce wine. Ricardo, incorrectly, concluded: 1 W a 0 9‘ Qhat as England has an absolute advantage in both products, no trade will take place. “4;. that the English will never import wine as British beer is so good. 1L0 50 c. that English cloth will be charged at the cost of 0 man-years and will exchange at the cost of 150 man years of wine d. All of the above. none of the above. Page 3 Your text [p i391 .describes how Ricardo needed a theory of value to support his model of the stationary state. A; I solve this problem, he: . a ntroduced a labor theory of value with variations in labor time explaining virtually all [93%] of variations in relative price. b. totally relied on a labor theory of value. c. introduced a labor command theory of value just like Adam Smith. (1. relied on a cost of production theory of value thus anticipating Marshall. ’ne of the above. 13. Professor Murphy calls Gootzelt's model of Ricardo's stationary state "a catastrophe state model" because: rolits at equilibrium are zero. In the next production period there would be no incentive to use capital in production. b. rents at equilibrium are zero. in the next production period there would be incentive to use land in production a c. wages are at the absolute subsistence wage. This would produce a revolutionary situation just as Marx said. d. the marginal physical product schedule is mootonic increasing. This would ruin business as prices would fall. e. all of the above. 14. Ricardo got out of the hind described in the previous question by: \JNnging it. b. arguing the stationary state was desirable as everyone could relax once it was reached and stop competing with one another. (I uing international trade would lower wage costs, and technical change would increase marginal productivies. r’ once a dynamic economy would always have short run profits as an inducement to bring capital to the mart'ket... d. All of the above. e. None of the above. _ 15. Ricardo in looking at extensive growth saw marginal output as falling from 100 to 90 to 86 quarters of wheat , and similarly for intensive growth. He thought equilibrium would be at 80 quarters of wheat which was essentially the subsistence wage. a. in arriving at this conclusion he was basically using Say's Law. C, . in arriving at this conclusion he explained he was assuming general equilibrium. in arrivlg at this conclusion he was essentially using what we have been calling Smith’s Law of Equal Return. all of the above. e. none of the above. 16. Ricardo's equivalence theorem can be explained this way: a. the present burden of funding an increase in government spending by either taxation or by floating bonds is identical. b. If we assume the annual payments on a perpetual bond B are Br then the present value of those payments is Br/r. cfi Hence the present value of the bond burden is B. c. We exclude considerations such as the time horizon of bond purchasers, and the constraints bod payments I, place on future governments. all of the above. e. none of the above. 11. Ricardo lived at a time when workers in England - the Luddites - were going around destroying machines believing them to create unemployment. a. Ricardo recognized that machinery displaced workers. b. He also saw that workers were needed to build the new machinery. Q c. He also saw that workers were needed to operate and service the new machinery. d. if capital was prohibited from building machinery it would simply go abroad. Furthermore, the lowered cost of 4- goods using machinery would not only benefit workers but would also promote exports. 6 ¥ ll of the above. 18'. Jeremy Bentham: a. was surely not the first to think in terms of utility. L b. was not the first to use the idea of the greatest good ol' the greatest number. ‘ c. was very successful in popularizing what becam be known as the “felicific” or “hedonistic calculus.” d. got the term “utility” from John Stuart Mill. 6“! of the above. 19. Jean Baptiste Say argued that: ‘a. GNP is always identical to GM. He was, after all, the father of national income accounting. d b. the monetary value of the GNP is always identical to the monetary value of the GM. .5.” the real value of the GNP is always identical to the real value of the GNL dxwhile market economies were subject to Kondratiev cycles and long swings, ultimately there would always be full employment. @None of the above. There was an inconsistency in Mill’s views as a liberal. e thought individuals should be allowed to make their own decisions provided they did not harm others. ‘ J) Yet he advocated a long list of government economic and social interventions. b. He believed in international free trade but advocated many measures to get an export surplus. A: He believed workers should have the right to form their own associations but he was totally against any form 0“ of partnership, or of cooperation. (1. He believed that wags could rise in capitalist society, yet he believed in a totally rigid Wages Fund. The only way to O raise wages was to let idle workers starve. e. All of the above. 31. Mill advised liberals that: they should at try to tamper with the Laws of Distribution and Production as these were atoral laws determined 3 by Nature, b. while they could not do anything about Distribution as this was given by Nature, intelligent policy makers could change the Laws of Production. (, ©while they could not do anything about the Laws of Production, governments could change the distribution of income. (1. All of the above. e. None of the above. 22. Mill believed that the laws of distribution are: a. “partly of human institution: since the manner in which wealth is distributed In any given society, depends on the statutes or usages therein obtaining.’ b He added the qualification “though governments have the power of deciding what institutions shall exist, they cannot d. arbitrarily determine how these institutions should work”. c. Political economy could discern the laws governing economic behavior, enabling governments to create appropriate institutions. ll of the above. e. None of the above. 23. Mill is the first major economist to: work out that an import surplus lowers Domestic Availability. b @int out that import surpluses do have the advantage that they make more goods available to a society than balanced trade at similar export levels. c..to question that international trade would benefit a country. (d: All of the above. e. None of the above. if“ , 24. John Stuart Mill made an advance on Ricardo‘s theory of comparative advantage by showing that: a. the ratios of exchange between two products will depend on the ratios of absolute advantages. @he ratios of exchange between two products will depend on the strength of demand of the two countries for the other is: countrim exports. c. the ratios of exchange between two products will depend on purchasing power parity. d. All of the above. e. None of the above. 25. In connection with the Stationary State, Mill argued that: a. Ricardo's model was basically wrong so that one could not conclude there would be a stationary equilibrium. b. that strong business cycie conditions prevented any country from ever getting to a stationary equilibrium. Ll reaching such an equilibrium would be desirabie as individuals could relax from the struggle for economic survival, and concern themselves with the finer things of life. d. it would take another two centuries of capital accumulation to reach stationarity. e. All of the above. Page 5 Mill considered that there were a class of relatively unimportant commodities, e.g. wines, works of art, coins, the site value of land, where: a. demand and supply were perfectly elastic. b. demand and supply were perfectly inelastic. demand was perfectly inelastic and supply infinitely elastic. @supply was perfettly ieiastic and demand was downward sloping. . supply was downward sloping and so was demand but of a different slope. a horizontal supply curve and a downward sloping demand curve. . a downward sloping supply curve and also a downward sloping demand curve but of a different slope. 0" c. an upward sloping supply curve, and a downward sloping demand curve. d. a perfectly inelastic supply curve and a downward sloping demand curve. e. All of the above. Mill believed that industrial markets displayed: 28 Mill believed that agricultural markets displayed: a. a horizontal supply curve and a downward sloping demand curve. . a downward sloping supply curve and also a downward sloping demand curve but of a different slope. £2 {a an upward sloping supply curve, and a downward sloping demand curve. d. a perfectly inelastic supply curve and a downward sloping demand curve. c. All of the above. Mill concluded that: e terms of international trade would depend on the respective demands for the imported products by the countries involved in the trade. . b. He introduced the cost of transport costs into his analysis of foreign trade and showed how high transport a J- eosts could destroy comparative advantages. c. He analyzed the effects of tariffs on theterms of trade. d. He showed the adjustments in trade brought about by unilateral transfers between two countries. ‘All of the above. mi‘xll‘l Marx on history: a. thought there was a dialectical process. b. But the dialectical process was not like Hegel’s dialectic. Marx accepted Feuerbach’s materialist conception of history. c. wrote that it was the history of class struggles. gr d. believed the dialectical process would end at the stage of communism. ll of the above. Karl Marx thought that the communist revolution: J would create a unique opportunity for humans to create conditions so that the purpose of living would be life itself free of the insecurities of the capitalist system. flu h. was OK in theory but unachievable in practice. ‘ c. would take many millennia before it could be realized. d. depended on the emergence of Great Men needed to lead the proletariat. c. All of the above. Karl Marx thought that capitalism would inevitably produce the communist revolution due to: a. the increased exploitation of capitalists. b. workers who became aware of the greater extent of exploitation they were subjected to. c. workers who became aware of the disproportion in the number of workers and capitalists. Q (1. workers who were not only stressed by exploitation and unemployment but by capitalist wars and the capitalist business cycle would increasingly see their only hope as revolution, when at the same time they had become convinced a revolution could succeed” QM] of the above 33. Marx believed that capitalists: a. served no useful function. They employed workers, managers, scientists, engieers, etc. while paying them less than the value of what they produced and meanwhile duped their employees into believing mat they - the d capitalists - contributed something. b. were only interested in icreaslng the rate of exploitation - slv. increased exploitation by driving wages [vi down to the subsistence level. All of the above. e. None of the above. 3'4. Marx was impressed by technological advance which led him to believe: a. there would be continuing increasing returns to scale leading to monopolies. . that it would be necessary for the capitalists to always spend more on capital goods thus increasing the organic composition of capital clic+v|. pital would displace labor so that there would be a reserve army of the unemployed that wouldrexist even at the top of a business cycle. = ll of the above. e. Noe of the above 35. Karl Marx believed that capitalists would get a decreasing share of the national income [the falling rate of proit argument} because: > a he rate of increase of the rate of surplus value was slower than the rate of increase of the organic composition of \ capital. Capitalists would then put increasing pressure on labor to get more surplus value. b. the marginal productivity of labor grew due to a greater abundance of capital. 0,, c. increasingly all social income would go to landowners. d. technology actually was unfavorable, destroying resources everywhere. As the capitalists owned everything, environmental degradation naturally hurt the capitalists most of all. e. the State would come in and attack monopolies and their monopoly profits. 36. Samuel Mountlfort Longfleld: a. became critical of the labor theory of value. b. worked out a margial productivity theory of value as early as 1834. {That date is accurate]. c. But failed to have lasting influence because he was a lawyer. So he was, said Prof M” like Gossen, Von Thunen, d Cournot, Dupult, and Fleeming .leldns - persons who worked out marginalists ideas - but who did not have 2‘ impact as they were not in the mainstream of economics. All of the above. None of the above. 37. Von Thunen: a. saw production being located in rings around a cetral place. h. truck farming would be near to a city. c. next there would be arable farming, forestry, pasture and then hunting lands. ' Q and labor would be used in each usage in accord with its marginal productivity. ll of the above. 38. Cournot: a. used supply and demand diagrams long before Marshall did. b. was the first to have the idea of perfect competition. c. had an analysis of duopoly which is still looked upon as a credible model. d. was preeminently the theorist of chance. He defined chance as the unpredictable concurrence of two independent 0’ causal seriu, and thus attributed to chance as much essential reality as cause. it was this notion of chance that led him to idicate the importance of probability calculus for statistics. at“ of the above. \. 9. Dupuit was : a. a brilliant and successful civil engineer. b. who in asking what was the benefit of an additional road or bridge essentially came up with the notion of consumer surplus. d c. He thought government should only intervene as a last resort in road and bridge building but if it did it should maximize the total utility of the marginal road or bridge to consumers. 'gAil of the above. 7 e. None of the above. A as. Herman Heinrich Gossen’s First Law was: a. that the Total Utility of a commodity was always an increasing function of the amount consumed. I that the Total Utility of a commodity was always an increasing function of the complements used with it. @at eventually the marginal utility of a commodity would Increase at a decreasing rate ad could actually fall. . All of the above. e. None of the above. 41. Herman Heinrich Gossen’s Second Law was: . that his first Law was not true on April Fool's Day. On that day , marginal utilities are simply stupendous. 30 @ that a consumer maximizes satisfaction when MUIP 3 Mill? 2 MUIP - MUIP = MUIP etc. for each and every good consumed. c. that a consumer maximizes satisfaction when avenge total utility is maximized. d. all of the above. e. none of the above. 42. Prof M. said the classical work for each classical situation was: a. The First Classical Situation: Smith’s Wealth of Nations. b. The Second Classical Situation; Mill's Principles of Political Economy. \ c. The Third Classical Situation: Marshall's [rigciplg of Economics. Q. d. The Fourth Classical Situation: Samuelson’s ECDIIOII'IIB. (Gall oi' the above. 43. Fleeming Jenkins was a Professor of Engineering at the University of Edinburgh. But he made many contributions to Economics. 3. He has clear ideas about supply and demand and worked out equilibrium solutions. b. He considered what would happen if there were shifts in the demand and supply functions. 0. c. He introduced the notion of consumer surplus and applied this to taxation. 6 He made contributions to the theory of wages. jail or the above. 454. Marshall clarified some of the puzzles in Ricardo by Introducing a distinction between pure profit and profit. For him competitive processes and the law of equal return would: a. purge pure profits out of the economic system. b. But would lead to each and every firm in each and every industry enjoying a profit. which he called the Q- ordinary rate of return, and which would persist as an equilibrium value. c. Pure profit could only exist in the market period. He also called pure profits “Total Quasi-Rents.” éjaj and lb]. méMarshall introduced into his economics time for firms to adjust to various conditions. He did not want to use equations with time subscripts so be solved the problem by: a. viewing iir as making adjustments in market, short run , long run, and secular periods. b. Marshall’s periods were not defined by the passage of calendar time but by the nature of the actions and g Q adjustments that fir tooit [or did not take in the case of the market period} in competitive marketplaces. c. He did talk of a secular period which was a long stretch of calendar time. drills rigorous economics dealt with the market, short run and long run periods. 1 7 ll of the above. ' n the long run of pure competition, total quasi-rents equal; b. TRoTC c. 'l‘R-TFC Ol Numb e. All-AFC. in the Marshallian mark period: a. quasi-rents equals zero. b. pure profit equals zero. demand and supply are both infinitely elastic. d . 1 a factor of production is variable. e. every factor of production is variable. Page 7 oi Ci Q FREEBIE 48. While Xenophon made an observation consistent with the Law of Diminishing Returns, the Law was . formulated as a recognizable law in the work of: [a]. Turgot in 1765. b. the Scottish economist Anderso in 1771. c. Edward West, Robert Torrens, Thomas Malthus, and David Ricardo in 1815. d. All of the above. E. None of the above. [Note: Anderson, West, Torrens, Malthus and Ricardo did all discuss the law at the times mentioned above.] 49. Prof M. said that in the American economy most current production takes place: a. in the Marshallian market period. b. in the Marshallian long nan period. under conditions of decreasing returns to scale. ‘“ the Marshallian short run period. . under conditions of constant returns to scale. 50. The Marshailian long run equilibrium in pure competition is: a. where all profits are zero. b. when quasi-rents are large enough to cover variable costs. over a century. Which is why he called it use secular period. en a firm, and the industry it is in, have had time to adjust to exit and entry, for factor imputation to have been completed, and for all firms to have adopted the appropriate scale. At this point pure profit will be zero, and product exhaustion occurs. @l of the above. : . Marshall made use of the idea of consumer surplus which goes back to Emil Dupuit. Kn individual's cosumer surplus is the difference between what the consumer is willing to pay for a commodity and what he or she actually pays. b. Consumer surpius is really an adaptation of Marx's notion of surplus value. c. Consumer surplus was an English adaptation of the French Physiocrat’s produt‘t net. d. Consumer surplus is another name for pure Ricardian rent. e. All of the above. 52. if there are 9 workers in a firm, and the span of control is 3, then: a. management has got to be really ineflicient. b. the workers cannot be willing agents. ere will be three tiers in a firm. [Top manager, middle managers, workers.] All of the above. workers must he slanting information making them difficult to manage. 53. Suppose there Is a firm in a single huge factory in which there are 100,000 workers excluding managers. Managers have a span of control of 10. Suppose that there will be a number of tiers of management going from a baSe of 100,000 persons to 10,000 sections ,l,000 divisions, 100 administrations, 10 chief administrations to the owner of the firm. So there are 5 tiers of management. We can expect in such an organization: a. noise is an increasing function of the number of tiers. b. that slanting is an increasing function of the number of tiers. All of the above. e. None of the above. @that there will be an agency problem. 54. Suppose the above firm wants to add another 20,000 workers and decides to employ the workers using the same factory buiidings and the same machinery. Before the change, Marshallian long run equilibrium existed. This is neither an increasing returns to scale firm nor a constant returns to scale firm. We can expect: a. diminishing returns to set in. b. the fixed factors will experience crowding. c. average total costs to go up. reater intensivity in the use of the fixed factors. ll of the above. L6 rage 9 An industry has a cost ladder if: when we can array average total cost curves from high to low [in terms of dollar cost] then each successive ATC cost curve's low point is lower {or higher] than the preceding one. in if there are different fixed costs. c. if there are different variable costs. d. if the uprising part of the marginal cost curve has different slopes for different firms. e. if inflation has raised average total cost over the secular period. 56. Natural monopoly exists theoretically whenever : a. there are conditions created by government that gives oe firm a market. consumers are really keen on the product of one firm. increasing returns to scale mean that a single large firm can always produce cheaper than smaller firms. All of the above. e. None of the above. 51. Factor imputation is the process whereby: a. a cost ladder is established in an industry. b. factor income are pushed down to the cultural subsistence wage. c. {actors are varied in the longrun. . the Ricardian stationary state reaches equilibrium. actors compete away pure profits to themselves. 58. Marshall: a. was the first to invent the notion of consumer surplus. b. did not make use of the idea of consumer surplus. c. got the idea of consumer surplus from the Physiocrats. . thought consumer surplus was always negative. None of the above. . The notion of general equilibrium: implicit in Smith’s “natural system of liberty” as his “law of equal returns” would equalize returns between 1n ustries, firms, and factors of production. b. was formalized by Leon ngrg in 1874. c. cannot be implemented empirically due to the enormous size of the equations set. d. but has given rise to simplications that have empirical content like input-output analysis and computable economics. "T:le of the above. 0. The first person to think in terms of a general equilibrium approach to socialist planning was: Enrico Barone in 1905. b. Aristotle in 310 B,C. c. Ibn Khaidun in 1401. d. Abu Hamid Al—Ghazaii in 1101. e. None of the above. 61. The economics of decentralized socialism was worked out by: a. Oskar Langc. b. Abba Lerner. c. Enrico Barone. . Wassily Leontief. 6M and lb}. . The ordinal revolution which was spearheaded by R.G. D. Allen and John R. Hicks: discarded the belief that utility could be measured cardinaily. . discarded the belief that interpersonal comparisons could be made. ot by without an assumption that utilities of particular commodities were additive. l of the above. e. None of the above. 0» [0 C. lo 63. Keynes in considering how to get an economy out of a deep depression looked at changes in government regulatory policy, monetary policy and fiscal policy all as possible methods to use. a. He concluded that as regards regulatory policy “I see no reason to suppose that the existing system seriousiy misemploys the factors of production which are in use.” He thus saw no case for regulatory change. b. He concluded that monetary policy would not work in a deep depression. c. He thus ended up believing the government had to use fiscal policy. d This was easier to do because of the existence of multipliers. fill of the above. 64. Keynes was, of course, a fine monetary economist. And in a fully employed, or almost fully employed, economy that had rising prices or other economic problems, monetary policy would be his recommended policy. However, the liquidity trap. . the fact Central Banks would not have sufficient reserves. c. the fact that there are extremely long identification, policy and implementation lags. d. the fact using monetary policy would have unfortunate foreign exchange implications. c. All of the above. ®eynes believed in a real deep depression, monetary policy would not work due mainly to: 65. Keynes believed that: onsumption spending was highly predictable. Past experience showed a “consumption function” could be estimated from past data. c. as consumers typically spent more than they earned, that consumption was a function of the interest rates that credit companies and banks charged. d. whatever the level of the GNP, consumption spending was a constant. e. All of the above. ,5. consumption spending was highly variable and could be considered as a random variable. 66. Keynes, not unlike Pigou, had a psychological theory of the business cycle. Due to that Say’s Law would not hold. He argued that: a. a drop in consumer confidence would lead to damaging shifts in the consumption function. h. governments typically overshot in their adjustments to changing business conditions because of panics that spread in Parliaments or Congresses. businessmen were subject to “changes In animals spirits” that would lead to increases or decreases in investment spending. Such changes were critical because they led to either pressure on resources or to spending gaps. d. All of the above. e. None of the above. 67. Because Keynes saw changes in ” animal spirits” as being highly important then: c saw investment spending as the key variable in producing spending gaps and depressions.. . he saw export demand as the key variable in producing spending gaps and depressions. d. he saw consumption spending changes as the key variable in producing spending gaps and depressions. c. All of the above. S he saw changes in government planning as the key variable in producing spending gaps and depressions. " 68. Keynes focused mainly on the investment multiplier. Subsequent to Keynes economists formally worked out a number of other multipliers. One multiplier which is quite counter-intuitive and which we owe to Trygve Haavelemo shows that: as a balanced budget has no effect on an economy. This is known as the equivalence theorem. b. export spending has an infinite multiplier. Fortunately this effect is offset by the import multiplier. Ox 6 if a government increases spending and taxing in like amount, then the multiplier effect of this is one. So if our government spent 50 billion on, say, Iraq but taxed us 50 billion the effect on aggregate spending would be an addition of 50 billion. (391M: export multiplier has a value of one. This is due to the leakage that import spending creates. e. None of the above. Prof M. said that work subsequent to the General Theory [1936] focused on a consumption function mat depended on permanent income. This means: a. you could not do empirical work on the consumption function as we don’t know permanent income. b. it' you went to Los Vegas and made a killing at blackjack, your marginal propensity to consume out of your blackjack winnings would not be the same as your marginal propensity to consumer out of your regular salary. c. it made econometric estimation more exact as the consumption function more closely modelled our actual consumption spending behavior. @ [b] and {c}. e. None of the above. 70.. For the simple Keynesian model we discussed in class, if we treat government spending and exports as reasonably constant, then the key variable whose fluctu s will determine the GNP is: a. consumptio spending. @Iwestment spending. [9 c. monetary policy. . regulatory policy. e. none of the above. 71. Gootzeit was: a. a Soviet Russian commissar who loved Ricardo’s labor theory ol‘ value and adapted it to Marxism. b. a little known nineteenth century economist who produced the equivalence theorem. d a Swiss economist who produced the factor equalization theorem. a Ph.D. student at Columbia who formalized Ricardian economics mathematically. e. None of the above. \UDu Q 72. Assume a Gootzeit model such that MPP=100-Q and the subsistence wage is 40. There are no capital expenses Then rent in the model would have the value of: C 1440140112. b.150150]12. @ooxson. d. [40 a 401. (your: of the above. in) 73. Use the same assumptions as 72. Wage costs [the Wages Fund} would equal: " 6 0 b. 1200. c. 600. e. None of the above. 74. Use the same assumptions as 72. Profits would equal: C a. 1200. b. [40 x 401;: . @Zero. d. Rent. e. an unknown percentage of Rent. 75. Ricardo believed that profits had a tendency to fall. But if profits fall. then capital will not be brought to the yrket. But he believed a country could still be progressive. still have capital brought to the market, if: a. international trade lowered wage costs. 0v technological change made agriculture more productive thus pushing MPP out. a. the government cut taxes for capitalists and subsidized farmers. rohibited the import of “corn” ithe Corn Laws] so wealthy landowners could save out of their earnings. ' x 76. In the model you have been looking at in equations 72-74 you have been looking at a farm {in answering below don’t introduce any assumptions of your own beyond what are contained in the given assumptions]: (J a. that was moving to the extesive margin. @ hat was movig to intensive margin. 11"" hat was movig to both the extensive and the intensive margin. .L ' - ll of the above. e. None of the above. / 77. The simple model you have been looking at sees returns diminishing at a constant rate. If you were to assume returns diminishing at an increasing rate - in other words the MPP function was curved - this would: a. wreck the whole model. Q, b. have no eflect on the model at all. would only affect where the intensive margin would be. t Ricardo out of the Stationary State bind. e. None of the above. 78. Suppose you were to add 25% capital costs to the labor costs in the model in 72-74. This would have the effect of: 3- 0‘ b. The following. Ricardo uses the MPPs 100, glne going backwards in this series such that we would have a series like 0, 10, 25, 50, ‘70, 100. Then when y==o then I would equal zero also. Switching to priced variables. @la] and [b]. e. None of the above. 5 80 The diagram [1] to the nght could represent f, a J S. Mill's case for rare wines, coins, etc. @darshall’s market period. . w c RA M '1- & c. A pure rent case. p All of the above. d None of the above. fit 8]. in the Marshaillan diagram [2} to the right, the (g grin ivolved is: ' perating on the intensive margin. . at the extensive margin. c. is at both the intensive margin and also at the 4 extensive margin. d. is earning zero quasi-rents: e. None of the above 82 . Considering the firm in dia gram 2, we would expect that the firm: To ultimately be subjected to , will consider moving to a more efficient scale. 1) . . l and [cl ’ All of the above. , a pure profit. éfiulfl-rflfls plus a pure profit. Pt A 4 KA-M L c. only quasi-rents with zero profits. d. quasi-ream plus the ordin e. None of the above. A 83. The firm in diagram 1 is earning: ary rate of profit. 84. Considering the firm in diagram 3 then: a. A is quasi-rents. B. is pure profit. A is pure profit. B. is quasi rents. This firm is operating on the intensive margin. . {a} and [c]. 6b] and [c]. 85. Again considering the firm in diagram 3, then this firm will be subjected to: ' a. competition from rivals. h. factor imputation. c. We can’t make conclusions about scale as we a don’t know the long run cost curve. ‘ I of the above. e. None of the above. Q 86. Consider the firm in diagram 4. X It is earning a pure profit. It is earning a quasi-rent. p Fe...“ is covering all of its costs of prduction. d. All of the above. e. None of the above. 87. Again, consider the firm in diagram 4. This firm: fa. will stay in the idustry as long as it is covering its variable costs. ‘11; will immediately exit the industry as it is at overing its full costs. L ill stay in the industry as long as the present value of future quasi-rets are greater than the scrap value ‘ of the firm. d. Can do better by changing to a more eliiclent scale. e. None of the above. 88. Consider the firm in diagram 5. We would call -'I I ' firm: “natural monopoly." . a purely competitive firm. 0\ c. a firm in oligopoly. ' d. a firm in a cartel. e. None of the above. 89. Consider the firm in diagram 6. We would expect a. this firm to survive as it is covering costs. b. never to see this firm because the implication is that it could be real tiny or really huge and have similar 5 costs. I O c. never to see this firm because the implication is that the industry it was in would have no modal sized firm. ibi andIcI- Tam am», Chivalv a None of the above. g: 3: i b iAQ’P—AM r. 7U. uuaauauvu nu. ua an n. u-—b- a... .. . ...., ___ ___ . ' structure is consistent with: ' a. the adding up theorem. b. the product exhausti/on'theorem. d A, it being able to palf each and every facttor the value of their margipa‘i physical product. _ Q Alloit above. .N t'th abo , 9?”. ve. 2 ‘8 ’ 91. Suppose there is {skit may with W G Function off i 100 + . . Exports are 100. “ Government is 100. investment IGCFI is too. Equilibrium GNP will be: a. 1000. '“‘ b. “M mi .an 1P 4 wet womb w” (in 1600 m . I . ,ch Emu, (do? : \ifi) L .. 5J3“? " ’ . N : fth bo e oneo ea ve. gm) zilLflnP % 92. Suppose that full employment for this economy €130 at 2,500. Then the gunmen-to produce full ___....——-' f“ employment would have to spend: .- /H§J ‘ b (1‘1 oigg..$\1§§fi'5;ibw~lggb“ we: none of the above. (Edith? g y 1 V: G ‘ M Consider 9], and 92. Suppose government did not 500 16 ‘ tied to increase its spending. . Then businessmen . Q, would have to spend the following for full employment “’0 I to result. 0 a. 500. b. 400. @ZM' L7 5‘ 100. e. none of the above. 9 94. Consider 91, and 92. The Parliament of this country is dominated by a group that believes in a balanced budget. They permit the government to spend 100 but they insist that taxes be raised by 100. The GNP will now go up to: a. 1900. e. none of the above. 95. Consider 91, 92 and 94. in this situation if the government wants to restore full employment and maintai full employment it would have to increase /8 mp J \ a both spending and taxes by: / 1 v -‘° 32?; “(lb >< .5 HED- Who 31:. , c.40. HUD (a. 1m) ii \qu . none of the above. ‘ .4 our r ucbi eith all by son. @ there would be a good chanee'oi' ii'lation r a, 500. __ 4 7 Jr ’7 now spending is greater than full employmet GNP. , .1 km not {U1} .mm’ . . fimmewmmmma 8" J‘sS' é it?!) i ii; Lam? . ‘03) em?) e if?) a page it. believes in pump priming. 1t believes it it spends one year, the economy will come roaring back. But suppose after that one year, there is no change in spending on investment or exports. The government has meanwhile cut back and has reduce taxes by the amount of the cutback. GNP will now .E a.stay thesame. é __ 7:. fall by 100. increase by 500. e. none of the above. 97. But suppose during the year when the government had a balanced budget and spent enough to get to full employment, businessmen's animal spirits improved and they increased spending by 100 within that year.. I What would happen would be: a. full employment would be reached. a e 2.. ll of the above. e. None of the above. (.9 i: 0L4: b J— 313513 98. Go back to 91, and 92. The government decides not to intervene but there is an increase in 1%. The ma in] pro nsity to l . ibrium GNP wouldI-Efiow 22% -2 5 g"\ mi) i- .t on)? HID M60 2250. c. 50. 7 Z I - v c.3100. ‘-.\_~ ’L 301. Z l, 3; fu==b 1 e. none ofthe above. ! ‘ 42% F: 4 99. Look at the chart below from be Los Ange es ’_ Times last Saturday. M P; 4. M? i F 8 -2 Business capital investment. such as purchases of new equipment. has rebounded sharply Over the last. two years after divinl in 2001 and 2002. Business capital spending. quarteriy Iolais at an annualized rate. seasonally adjusted [in Hum) ‘ Business spending boom Fourth quarter 2004: Sui-255.2 SL400 ............................................................................. .. 500 e ..................... e ................... ,, . First quarter 1986; 500 5527.2 re-- '37 '89 "I'us‘im '93 '95 ' Data M all us. rut-mm llIId mm. Sources: Bloom Nana. comm Department Jy- -”L\'“WD [AH Infill! Tillfl \UDA .mu Variant viii" 1051. .6th e v .7. no? sesam- V— . - .....-.. euulia’rlll'l w w .r. uy swung a! me CHI”- _ conclude that business investment from 2001 to when multiplier effects are considered put .‘ ing like: a .1 billion into the economy. .2 billion into the economy. @ billion into the economy. d. .6 billion into the economy. e. None of the above. 100. As the Federal Reserve Board for some time now has been raising interest rates and announcing that it intended to continue to raise rates, one of the explanations for the increase in business spending ould be: (Q temporal arbitrage. Businessmen know that interest rates are going up so that it is cheaper to borrow funds now than in the future. b. improved animal spirits as the increased business spending is helping to raise the level of GNP so the investment is self-reinforcig. A virtuous circle. c. neither of the above. d. the answer is not d. e. the answer is not e. OK. PLEASE NOTE [1] If any typos were discovered during the exam, they will be listed on a TYPO LIST in your classroom. You should check this list before submitting your examination. [2] Please check your exam grades and homework scores in the CLASS ROLL. If there is an error in your record, make a note ' of this in the REGISTER OF ERRORS. [3] If you want to pick up your midterm and homework, this will be available on the handout table outside Rolfe 362 from 12.30 onwards. If one of your homeworks is missing make a note of this on the appropriate , MISSING HOMEWORK ROLL which is located in the homework files. ' [4] Put your Homework in the Homework Box and then print your name on the HOMEWORK SUBMISSION ROLL. HAVE A GREAT SPRING BREAK! ...
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This note was uploaded on 03/04/2008 for the course ECON 107 taught by Professor Murphy,g during the Fall '07 term at UCLA.

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Final Exam - Economics 107 Final Examination in... March...

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