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Chicago. Money, Banking, and Monetary Policy Exam for A.M. and Ph.D. Friedman, Mints, Marschak, 1952




The committee for the Money, Banking and Monetary Policy examination for the A.M. and Ph.D. degrees for the Winter Quarter 1952 at the University of Chicago consisted of Milton Friedman (chairman), Lloyd Mints, and Jacob Marschak. The date of the examination was February 12, 1952 taken by 25 students. From Milton Friedman’s notes it appears that the committee agreed to pass ten examinees at the Ph.D. level, ten at the A.M. level and five were failed.


Written Examination for the A.M. and Ph.D. Degrees
Winter Quarter, 1952


Write on the first three and two other questions. Time: 4 hours.



  1. Suppose that (1) the national income is $270 billion; (2) the total wage bill is $180 billion; (3) the average annual wage is $3000, with only negligible variation among individual wages; (4) government’s demand for goods and services is $60 billion, and consumers’ demand is $200 billion. Suppose that, through joint action of employers and labor unions the wage rate is increased by 10%, and that the real volume of government demand is not changed. Indicate further conditions (such as, for example, the monetary policy, fiscal policy, technological conditions, initial level of employment, the behavior of consumers and of entrepreneurs) that you deem particularly important for a rough estimate of the effects of the rise in wages upon the levels of (present and future) consumption and of prices. Give two or three such estimates on the basis of your own hypothetical numerical specifications of those conditions.
  2. “It will be sound policy for the Treasury to borrow new funds insofar as possible from nonbank sources, to minimize the inflationary potential of the deficit.” (January 1952 Economic Report of the President, pp. 141-2.)
    Discuss the basis for and validity of this view. In your answer, distinguish between the effects of borrowing from the Federal Reserve Banks and from other banks; and justify your conclusions in detail.
  3. According to the Keynesian theory of income and employment, the change in money income equals the change in “investment,” or, more generally, the change in “autonomous expenditures” times the “multiplier.”
    (a) Explain the terms in quotation marks. How, if at all, does the value of the “multiplier” depend on the distribution of income, the stock of money, the rate of interest?
    (b) A shift from a balanced government budget to a deficit because of an increase in expenditures would generally be regarded as a corresponding increase in “autonomous expenditures,” and therefore, other things the same, as leading to an increase in money income equal to the multiplier times this amount. Can this statement, which suggests that any effect on money income of the deficit depends only on its size and the size of the multiplier, be reconciled with the quotation in question 2, which implies that “the inflationary potential of the deficit,” presumably meaning the rise in money income it produces, depends on the method of financing the deficit?
  4. It has been claimed that the British made the gold content of the pound sterling too high when they returned to gold in 1925. What would be the effects of such action? Did these effects actually appear to any significant degree? In any case, what means were available, if any, for determining the “correct” content of the pound?
  5. “The great difficulty, if not the impossibility, of reversing a downward movement [of business activity] by monetary means alone must be accepted as demonstrated by experience.” Is this statement warranted? Support your position.
  6. “Lowness of interest is generally ascribed to plenty of money. But money, however plentiful, has no other effect, if fixes, than to raise the price of labour…It is in vain…to look for the cause of the fall or rise of interest in the greater or less quantity of gold and silver, which is fixed in any nation” (David Hume, 1752).
    Discuss in light of “modern” theories of the rate of interest.


Source: Hoover Institution Archives. Papers of Milton Friedman. Box 76, Folder 9 “University of Chicago Econ 300A”. [sic, this and other money, banking and monetary policy exams have been filed with material for the price theory course]

Irwin Collier

Posted by: Irwin Collier

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