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 loc...
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