Econ 107 Spring 2007 Final Exam - r 1 Economics 107 FINAL...

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Unformatted text preview: r... 1% Economics 107 FINAL March 23, 2007 INSTRUCTIONS - READ CAREFULLY. 1. Use a # 2 pencil on your Scantron. If you don’t have such a pencil, request one. 2. WARNING. Experience shows that if you make an erasure on your Scantron or use a #1 pencil, you run the risk that the optical scanner - which is very sensitive - in the grading machine will score your answers as being incorrect. F or obvious reasons, we are going to take the scanner ’s grading as final. So don ’t make erasures and use the correct pencil. Hint: score your answers on this examination paper, and transfer them to your Scantron when you have completed your work. There are a few blank Scantrons available in the room for 25 cents. 3. There are 12 pages to this examination on 6 sheets. Check that you have the correct number of sheets. Note that there are always 5 options to any of the following statements. Only one is correct. 4. Save this examination so that you can check your answers on the Econ 107 Website. Answers will be available today by noon. 1. Most economists Would agree that the first economics paradigm emerged with Adam Smith’s Wealth of Nations. One of the ing conditions did NOT lead to this emergence: Smith had been much impressed with Newton’s work and he and Hume wanted to do in moral philosophy what Newton had accomplished in natural philosophy - delineate a basic order to the phenomena of interest. {conomic life had become sufficiently complex and obtrusive that it had got the attention of thinking people. ,t./tehe Scottish Enlightenment had produced an environment in which educated persons could speak relatively freely about the issues of the wealth of nations. 0 d. the Calvinist church in Scotland’s emphasis on education helped produce the Scottish Enlightenment. Adam Smith used the term “economic system”, started lecturing on “Economics” at the University of Glasgow, and worked out the ' equations for a general equilibrium of the British economy of his day, thus creating the paradigm. 2. What is wrong with Malthus's belief that population increases by a geometric progression is: Malthus is just wrong that the only checks to population are (a) starvation, wars, and (b) abstention from sex. . countries with developed economies actually always experience linearly growing populations. c. that he‘copied this belief from Alfred Marshall without looking at any data. d. that be restricted this belief to underdeveloped countries ignoring the fate of the developed Western economies. e. that he was accepted the Utilitarian view that all life creates total utility and so any sensible government will be maximizing the size of its population in order to maximize total social utility. 3. Pinkerton argued that if we read Malthus carefully: gr“ e will find out that Malthus‘s European travels had convinced him all the more that wages tended towards subsistence.” We will find out that Malthus in his later books simply repeated the convictions of the first edition of his Essay on Population.” we will find out that “toward the end of his life, Malthus altered his views. In “Principles of Political Economy” (1820), he acknowledged that economic growth would improve the prospects of the populace.” d. “we shall find out that Malthus was a member of an elite that looked upon their fellow humans as liabilities.” e. “we shall find out as we read successive editions of his Principle of Population. Malthus becomes even more convinced of the views exposited in his first edition. . _ Real 5 , 5-» $3 4. In the diagram to the right which appeared in early 60‘- versions of Samuelson’s text, the Malthusian CF equilibrium would be at: CE: :1 ' seat d: bog”- e. W. I . ‘ I Page 3, Sheet 2 13. Ricardo believed [I] the falling rate of profit: a. for exactly the same reasons as Karl Marx. This is where Marx got his ideas from - Ricardo. b. as being just around the corner for England. This is why Carlyle called economics ‘the dismal science.” . as being something statesmen could do little about. It was a law of nature. 6. as a tendency which technological growth and wise statesmanship (e.g. by expanding world trade) could prevent from emerging. e. as only true for European countries, not for England. 14. Professor Murphy has called Gootzeit's model of Ricardo's stationary state "a catastmphice state model" because at quilihrium: profits are zero. Capital and superintendence will not be brought to the market in the period after the so-called “stationary state” equilibrium as there is no return to them. b. rents are zero. c. the wage level is below the subsistence wage. d. the marginal physical product schedule is monotonically increasing. e. low profits will produce political revolutions. This is where Marx got the idea. 15. Ricardo followed Adam Smith in using the Law of Equal Return when: a. he showed how countries with similar Absolute Advantages would be equally prosperous. b. he computed Comparative advantages. . he worked out his Equivalence Theorem. showed returns at his intensive and extensive margins were equal. e. he argued England would eventually emulate Portugal and produce wine at the same rate of profit. 16. Ricardo’s equivalence theorem can he explained in this way: a. The present value of funding an increase in government spending by either taxation or floating bonds are only equivalent if the tax rate is zero. If we assume that the annual payments on a perpetual Bond, B, are Br, then the present value of those payments in Brlr. Hence the present value of the bond burden is B. c. Trade could only tke place between England and Portugal only if they had equivalent prices for the traded goods. d. That it is not true if the government uses “consols” [perpetual bonds] as British governments did use in Ricardo’s day. This is because the longer the life of the bond, present value becomes slowly increased as a function of time. e. Ricardo, in Parliament was deeply interested in finding a way for the British government to avoid paying any taxes at all. 17. Ricardo in his Chapter XXIII. 0n Machinery, of his The Principles of Political Economy and Taxation, 1817: a. showed great sympathy with the Luddites of his day who were going around destroying machines because they created unemployment of labor. In Parliament he advocated that machines be phased in at a very slow rate to minimize transition costs to labor. b. believed that a rational policy in this area was impossible as such a policy would be opposed by the irresistible power of special interests. ® argued that new machinery made England more competitive, and reduced the costs of living of workers. In addition new machinery created employment because they had to be built and to be serviced. d. Opposed the introduction of new machinery as it upset the equilibrium of the Stationary State. e. Showed how the introduction of machinery was preparing the grounds for a Marxian revolution. 13. “Benthams’s interpretation of utilitarisn rested on some clear-cut value judgements” [Backhouse]: C; Society’s interest is the sum of the interests of the members of society. . Every man needs a wise advisor to find out his own interests. c. The rich have a much greater capacity for happiness than the poor. d. The utility that women get from consumption is less than men get. e. The utility that women get from consumption if far higher than men get. 19. James Mill {1773-1836} was another classical economist who believed in Say’s Law. [Your text, p. 142] This meant, according to ackhouse, that he believed: . é that there never could be a shortage of demand in general. . French economics was better than British._ c. that depressions arise from a shortage of demand in aggregate. d. that depressions arise due to shortages in demand for particular commodities. e. if enough people “say” something, it will affect the market for stock and produce a depression. [11' you mark this one as correct, I am going to thump you! Prof M. ] 20. Jean Baptiste Say’s Law is: a. Demand creates its own supply b. Demand creates an equal supply. c. Competitive demand is perfectly inelastic. . Market supply is perfectly inelastic. Supply creates its own demand 29. J. S. Mill did not believe one of the following: Page 5, Sheet 3 a. that a class of commodities had perfectly inelastic supplies. ' . b. that industries had long run constant returns to scale. c. that agriculture had long run decreasing returns to scale. -. that the Stationary State might be an acceptable equilibrium. that Nature rigidly determines the distribution of income so that it cannot be altered by humans. 30. J. S. Mill is the first major classical economist to: a. side with the mercantilists and argue for an export surplus. ide with the physiocrats and argue that only agn'culture produces a Produi't Net. @ilt out the benefits of an import surplus. . write out the equations for a general equilibrium. e. solve the adding up problem. 31. J. S. Mill made an advance on Ricardo's theory of comparative advantage by showing that: . he terms of trade between two products will depend o the ratios of absolute advantage. . ®the terms of trade between two countries will depend on the relative strength of demand of the two countries for the other countries exports. c. the terms of trade between two products will depend on purchasing power parity. d. the terms of trade between two products is infinite when price is zero. This is a purely theoretical result. e. in some cases you did not have to have comparative advvantage in the free market for trade to take place. 32 J. S. Mill believed that the stationary state : a. was just a bunch of nonsense that Ricardo had thought up. . was only possible centuries ahead for England. écould be desirable. It would reduce the “trampling, crushing, elbowing, and treading on another's heels.... It is only in the backward countries of the world that increased production is still an important object; in those most advanced, what is economically needed is a better distribution.” d. was a bunch of Marxist nonsense. e. only occurred if you had Ricardian equivalence. where supplies were perfectly inelastic, like wines of rare vintages or old masters. . where demands were perfectly inelastic, like all items of food. c. where both demands and supplies were perfectly inelastic. d. where both demands and supplies were perfectly elastic. People had an infinite eed for the production of this market. e. where it would take generations for an equilibrium to emerge. . J. S. Mill thought in terms of three kinds of markets one of which was markets: 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. c. an upward sloping supply curve, and a downward sloping demand curve. J d. a perfectlyinelastic supply curve and a downward sloping demand curve. F 61. J. 8. Mill believed that industrial markets displayed: e. constatly fluctuating elasticities of both demand and supply. 35. With respect to J. S. Mill’s views on agricultural markets: a. the diagram to the right is accurate. It shows Mill )0 agreed with Malthus that there was a limited amount P of agricultural supply. b. The diagram is not relevant as it shows Mill’s views of industrial markets. '- The diagram to the right is irrelevant. It deals with G? commodities like rare wines, and old masters. d. it is impossible to diagram them as they are so complex. e. In the diagram above, be is using Adam Smith’s diagram. 6 In J. S. Mill’s writings 0 international trade, he i - - '6 concluded, correctly, that the terms of trade between two countries depended on the relative demands for the imported products of those countries. b. made absolutely no contributions at all. e. felt that tariffs had no effects on on the terms of trade. . d. felt that there were no adjustments in trade brought about by unilateral transfers between countries. e. saw no real benefits - he was essentially a Mercantilist. 37. Herman Heinrich Gossen’s First law is: a. that MPP decreases at an increasing rate. _ _ _ _ ' . . thhat consumers get satiated with a good - in other words after a point marginal utility drops at an increasing rate With successive increment of a good and could eventually become zero and then negative. _ _ c. that the extensive margin will be cultivated up to the same level of output as the extensive margin. d. the hill of output is cardinally measurable. I . e. Total untility is inverse to the number of persons who consume a particular commodity. 47. in the Marshallian short/rim: Page 7, Sheet 4. a. the firm‘is~ ecessarily, in'eqii’ilibrium. c. wehave angldpntggal-sitfation to Ricardo’s stationary state. d. the firm must-7' spat-[e profit or the short run situation will not be an equilibrium one. Quasijaents are 5 'ly the difference between total costs and total fixed costs. atleastflne factor 0 oduction is in perfectly inelastic supply - there are fixed costs.. 48. The Marshallian long run is the period during which ; I a. fundamental social and economic parameters like institutions, technology, and population can change. b. there is sufficient time for demand curves to become inelastic due to the expansion of the number of substitutes. c. quasi rents are infinite. d. as Keynes said - for Marshall it is when We are all dead. @each and every factor of production is variable. 49. For Marshall the 'secular period was: - . a. after the Protestant reformation so that Economics no longer had to worry about ethics or religion. b. remarkable, because, as Weber had showed, the Protestant religion was highly important in the development of capitalism. c. Pareto optimal and Pareto desirable as economic judgments were not clouded by ethical consideration. :. was when the Catholic church no longer had power to talk about just prices and just wages. e hen there are gradual or Secular movements of normal price, caused by the gradual growth of knowledge, of population and of capital, and the changing conditions of demand and supply from one generation to another. 50. Both the long run and the short run “Marshailian” average total cost curves are U-shaped : a. and the reason for that is the same. In both cases it is due to crowding of the fixed factor. b. and the reason is that after the low point of Average Total Cost is arrived at, marginal costs start falling. c. and the reason is that as a first class mathematici Marshall liked things to be symmetrical. d. because you find this in Ricardo. ut the reasons for this are dissimilar. For the short run the reason is crowding of the fixed factor. For the long run the reason is the “coordination problem.” 51. For Marshall a Pure Profit was a signal: a. that all factors shares had been fully imputed. b. that the firm ws in an industry that should be regulated by government. . that a firm should contract output or its success would attract the attention of the tax man. é. that a firm that earned it was in an industry that was not in equilibrium and factor costs may not have been correctly imputed" e. that a firm that produced the product was a pretty ethical outfit. It got profits in a pure way. 52. The key idea behind Marshallian quasi-rents is that: a. Land really isn’t fixed in supply and you can create new land. For example, the Dutch build polders to keep out the sea, and O reclaim land behind the polders. So Marshall essentially said: Come on economists. Land isn’t in fixed supply so let’s be honest and say it gets something like a pure rent - let's call it quasi—rent.” So capital gets profit. Management gets interest. Labor gets wages. And land gets quasi-rent. ,K Marshall pointed out that land always got taxed, so taxes were just like rents. So he called them quasi-rents. c. The total of quasi-rents could support the government just as Henry George had rgued. . ® Any factor of production whose supply is fixed for the period of production under examination can be viewed as having a perfectly inelastic supply function, and thus earning as return similar to land during the period when it is in fixed supply. Marshall was nostalgic for the days when he was a tutor in Latin at Clifton College and loved to pretty up his work with Latin words. \. 53. In “Marshallian” economics, cost ladder adjustments are produced by: a. government regulations. b. the central economic plan of the government. . quantity adjustments only. After all competitive prices are fully determined. é exit and entry, factor imputation,. changes in scale. . By price adjustments only. Firms never change the outputs they produce near an equilibrium. 54. Factor imputation is the process whereby in perfect competition: - a. factors are able to successfully bargain for higher wages, rents, profits and interest regardless of whether a firm is at full equilibrium or not. factors earn the their marginal physical products. factors can switch to other industries where they get their marginal physical product. actors can bargain and get the value of their marginal physical product as a wage, rent, profit, or interest. . in each and every firm, the entrepreneur knows how to calculate how many factors his competition are using. 55. Exit in “Marshallian” economics is triggered by: a. Normal profits existing in the relevant industry. . prices that fall below Average Total Costs. hen prices fall below Average Total Costs but are above Average Fixed Costs and the scrap value of the firm exceeds the present value of quasi-rents. d. Government regulation. e. If firms earn an impure profit. [Not : “Marshallian” means Marshall’s economics plus recent extensions of his theories. ] G3 ..... ............. “““ ............. .........................Page$5th5 . . Keynes simple [textbook] employment multiplier is equal to: a. the marginal propensity to save @ ll-MPC] or II] [1-b} c. the slope of the investment function. I. ll[the slope of the investment function.] e. all of the above. 67. One of the cheerful aspects of the Keynesian model is: a. that unlike Ricardo’s model, landowners get zero. . while workers get subsistence wages at least they will be fully employed. @ that while Government has to come in to spend in order to push up aggregate spending in a recession , the multiplier makes the intervention much less expensive than the amount of the spending gap. d. that Keynes thought as money-making was a neurosis, we all would be better off with a recession. e. that it predicted a convergence between capitalist and communist economies. 68. In Economics [one below is false}: a. there is a paradigm . b. There is an accepted canon or canons. c. There are recognized classical situations. d. There is a standard econometric practice. ® There is total agreement on what is correct economic policy. are crucial to a discipliue’s view of its own emergence as a discursive entity with its own chronology. [Brown]. . are timeless so that they do not involve meaningless cataloging of a discipline’s credemtials by providing useless chronologies according to which the modern discipline tries to record its own achievements and advances. [Brown]. c . are always static, and frozen in content. . d. never include a series of minor canons reflecting the interests of subordinate or dissenting practices within a discipline. e. are barren of any use to a particular discipline of knowledge.. [0n Vivienne Brown]. According to'Brown, Canons: 70. [On Robbins] According to Lord Lionel Robbins in “Malthus as an Economist” was concerned, among other things, to show that: a. Malthus had worked out a consumption function before Keynes. . Malthus hd independently solved the product exhaustion problem. éMaltbus’s arithmetic for increases in agriculture was based on a fairly well developed idea of diminishing returns in agriculture. . Malthus was not so hard hearted as some represent. He was in favor of the Poor Laws. e. Malthus made no contribution at all to the theory of rent. 71. Amartya Sen, in looking at population issues, rem...
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