Harvard. Earliest Multiple Choice Exam for Principles of Economics, 1948

 

What makes the second semester  final examination for Principles of Economics at Harvard in 1947-48 particularly interesting is that we probably discover there the introduction (at least to Harvard’s economics department) of that  art form known as the multiple choice question. For the sake of completeness I have transcribed the first semester final examination as well. Coming up soon will be the course reading list for both semesters. I challenge readers to take the multiple choice exam and send me their answers. Perhaps someone out there will get a grant fat enough to allow administering the exams to a sample of current students! 

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1947-48
HARVARD UNIVERSITY

ECONOMICS Aa

 I.
(One hour and a half)

Answer BOTH questions

1. Suppose that Congress approves a European Recovery Plan which would entail a $4 billion expenditure by the United States Government during the coming year. This expenditure could be financed by the sale of government bonds (a) to the public; (b) to the member banks; (c) to the Federal Reserve Banks; or by (d) taxation. Indicate the effects of each one of these alternative methods on (1) member bank reserves (2) the money supply. Illustrate b use of member bank and Federal Reserve Bank statements (balance sheets).
2. Analyze and discuss “the process by which competition rations scarce goods, determines their values relative to each other…regulates the types and amounts of the goods and services produced, and encourages the use of the most efficient productive processes.” (Quoted from Chandler, p. 185)

II.
(One hour and a half)

Answer any THREE questions

3. Given the following incomplete data for 1939 (rounded out to the nearest billion):

Government outlays inclusive of transfer payments………17
Corporate saving (i.e., undistributed profits)…………….……1
Total taxes…………………………………………………………………15
Gross private investment…………………………………………….10

which of the additional items listed below would be necessary in order to deduce separately,   1. Gross National Product, 2. Net National Product, 3. Personal savings.
List of additional items:

a. Total wages,
b. Total money supply at beginning of year,
c. Total money supply at end of year,
d. Net increase in inventories,
e. Consumption expenditures,
f. Depreciation,
g. Income velocity of money,
h. Transfer payments by government,
i. Net change in member bank reserves.

4. How does the economist define profit? Why is this definition likey to differ from the concept of profit of the business man? What is the purpose of the eonomist’s definition?
5. Analyze the effect on the price charged by a monopolist for his product of THREE of the following:
   1. A rise in the cost of labor,
   2. A percentage tax on his profits,
   3. A tax on the value of his plant and equipment,
   4. The appearance on the market of a high priced rival substitute for his product.
6. Discuss the advantages and disadvantages of attempts to use anti-trust laws to restore competitive conditions in large scale industries.

Final. January, 1948.

 

Source: Harvard University Faculty of Arts and Sciences. Papers Printed for Final Examinations: History, History of Religions,…,Economics,…Military Science, Naval Science. January, 1948. Harvard University Archives, Harvard Final Examinations, 1853-2001. Box 15 of 284.

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HARVARD UNIVERSITY
THIS EXAMINATION PAPER MUST BE RETURNED TO THE PROCTOR

ECONOMICS Ab
May 17, 1948

 

The total time allowed for the three objective parts of the Examination is eighty-five (85) minutes. At the end of that time, these three objective parts of the examination will be collected.
Read carefully the instructions for marking the answer sheets.
Do not write on this paper. Use the scratch paper provided.

 

PART I

Indicate on the separate sheet the one best answer to each of the following questions. For each correctly marked answer, credit is given. For each incorrectly marked answer, credit is taken away. For each question no answered, credit is neither given nor taken away.
Allow approximately twenty (20) minutes for this part of the exam.

A vineyard produces only one output, burgundy wine, with only two inputs, unskilled agricultural labor and ten acres of land planted in grapes. The firm hires labor on a day-to-day basis, and can freely vary the quantity hired; the market for labor is purely competitive. The firm rents the land from its real owner, and has a two-year lease obligating it to pay a fixed monthly rental; moreover, it cannot increase or decrease the quantity of land which it can rent in less than two years. The price of burgundy wine is fixed by a trade association, and does not change during the entire period considered in this problem. The firm is in complete equilibrium, with optimum adjustment of inputs (land and labor) and output (burgundy wine) for maximum profit.
Now, the wage which must be paid for labor falls. There are no changes in the economy other than this fall in wages and its effects. In the firm’s new short-run equilibrium, compared to the original situation:

4. 4. 1. The schedule of the marginal revenue productivity of labor to the firm
         1. is raised.
         2. is lowered.
         3. is not shifted.
         4. Its behavior is indeterminate with the information given.
      2. The schedule of the marginal cost of labor to the firm
         1. is raised.
         2. is lowered.
         3. is not shifted.
         4. Its behavior is indeterminate with the information given.
      3. The quantity of labor hired by the firm
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      4. The marginal revenue productivity of labor for the quantity now hired by the firm, compared to the marginal revenue productivity for the quantity hired in the original situation
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      5. The total payment made to labor by the firm
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      6. The output of burgundy wine produced by the firm
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      7. The profit of the firm
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.

After many years pass, in the firm’s new long-run equilibrium, compared to the original situation:

4. 4. 8. The quantity of land rented by the firm for any particular output of burgundy wine produced
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      9. The quantity of labor hired by the firm for any particular output of burgundy wine produced
         1. is increased.
         2. is decreased.
         3. is not changed.
         4. Its behavior is indeterminate with the information given.
      10. The schedule of the marginal revenue productivity of labor to the firm
          1. is raised.
          2. is lowered.
          3. is not shifted.
          4. Its behavior is indeterminate with the information given.
      11. The output of burgundy wine produced by the firm
          1. is increased.
          2. is decreased.
          3. is not changed.
          4. Its behavior is indeterminate with the information given.
      12. The quantity of land rented by the firm
          1. is increased.
          2. is decreased.
          3. is not changed.
          4. Its behavior is indeterminate with the information given.
      13. The quantity of labor hired by the firm
          1. is increased.
          2. is decreased.
          3. is not changed.
          4. Its behavior is indeterminate with the information given.
      14. The rental per acre on the land rented by the firm
          1. is increased.
          2. is decreased.
          3. is not changed.
          4. Its behavior is indeterminate with the information given.
      15. The total rent payment to the owner of the land by the firm
          1. is increased.
          2. is decreased.
          3. is not changed.
          4. Its behavior is indeterminate with the information given.

 

 

PART II

Indicate on the separate answer sheet the one best answer to each of the following questions. For each correctly marked answer, credit is given. For each incorrectly marked answer, credit is taken away. For each question not answered, credit is neither given nor taken away.
Allow approximately forty-five (45) minutes for this part of the exam.

4. 4. 16. A tax is proportional if
          1. the tax rate increases as the tax base increases.
          2. the tax rate decreases as the tax base increases.
          3. the tax rate remains the same as the tax base increases.
          4. the tax rate increases at a decreasing rate as the tax base increases.
      17. The Federal government can ease the inflationary pressure created in the U.S. through the European Recovery program by
          1. requiring that all the funds sent abroad be spent in the U.S.
          2. budgeting for a surplus.
          3. financing the program by borrowings from commercial banks.
          4. financing the program by borrowings from the federal reserve banks.
      18. The International Monetary Fund reflects the desire of the member nations to
          1. restore the pre-1914 gold standard.
          2. construct a stable yet flexible exchange rate system.
          3. eliminate, or at least reduce, tariff barriers.
          4. provide funds for the reconstruction of war-devastated Europe.
      19. A larger supply of dollars can be made available to other countries by
          1. stopping U.S. gold purchases and thus ending the drain of gold from abroad.
          2. reducing U.S. purchase of foreign securities.
          3. reducing U.S. trade barriers, particularly tariffs.
          4. continuing subsidies to American agriculture.
      20. The main source of instability and disturbance in the international dealings of the U.S. during the inter-war years was
          1. the surplus in the supply of dollars made available to other countries throughout the period.
          2. caused by deficient foreign demand for U.S. products.
          3. the extraordinary amplitude of fluctuations in the U.S. domestic economic life with concomitant variations in our purchases of foreign goods and services.
          4. stability of the movements of capital, into and out of the U.S.
      21. Which of the following would tend to increase the value of the dollar relative to the British pound under a system of free exchanges?
          1. Purchase by U.S. citizens of bonds issued by a British corporation.
          2. Payment of dividends by a British firm to U.S. stockholders.
          3. Flight of short term capital from U.S. to Great Britain.
          4. Greater increase in U.S. prices than in British prices.
      22. To find the marginal physical product of a factor we
          1. divide the total product by the number of additional units of the factor.
          2. see how much the total product has increased as a consequence of having used a small additional amount of the factor in question while holding the input of other factors fixed.
          3. examine the rate of change of average product.
          4. see how much the total product has increased as a consequence of having used a small additional amount of the factor in question along with the technologically appropriate additional amounts of the cooperating factors.
      23. A depression in the U.S. would tend to spread to foreign countries
          1. through lower incomes in the U.S., therefore lower U.S. imports, therefore lower incomes in countries exporting to the U.S.
          2. through lower incomes in the U.S., therefore greater importation of foreign goods, therefore lower real incomes abroad.
          3. through low prices in the U.S. causing greater demand in the U.S. for foreign commodities because of the Law of Demand.
          4. None of the above is an acceptable answer.
      24. Equity investments (stocks) rather than ordinary lending (bonds) is preferred as an implementation of a policy of foreign investments because
          1. the return is more certain.
          2. stocks are easier to sell in this country.
          3. the return is geared to the level of economic activity in the foreign country and, therefore, doesn’t represent such a burden in times of economic stress.
          4. the return is larger.
      25. A laborer’s reservation price is that which
          1. every other unit of labor receives.
          2. is so low that he prefers not to work.
          3. is the minimum amount he will take and still work.
          4. is so high that when he gets it he will refuse to work anymore.
      26. Once economic recovery has set in, inflationary price rises are likely to occur, even before full employment is reached, provided that
          1. the supply of some factor services is inelastic.
          2. the supply of some factor services is elastic.
          3. large scale increases in productivity take place.
          4. a sudden recession occurs in several important foreign countries.
      27. “All employees who, fifteen days after April 23, 1947, are members of the Union in good standing in accordance with its constitution and by-laws and all employees who become members after that date shall, as a condition of employment, remain Union members in good standing for the duration of this Agreement.”
          The above section of a trade agreement is commonly referred to as
          1. a union ship clause.
          2. a closed shop clause.
          3. bargaining for members only.
          4. None of these.
      28. A businessman produces a product using only one variable input, labor, and one fixed input, machinery. He pays his labor under a piece rate system and hires it in a competitive market. In the short run, if he increases his output
          1. his average variable cost will fall.
          2. his average variable cost will rise.
          3. his average variable cost will remain the same.
          4. his average variable cost will first fall and then rise.
      29. It is commonly believed that taxes upon economic profits are not shifted in the short run because
          1. redistribution of income and consequent changes in demand which occur are negligible.
          2. profit taxes are not business costs and hence do not alter the adjustment of output (therefore supply) which maximizes profits.
          3. neither the “marginal” firm nor individual ever pays taxes on profits.
          4. migration of capital occurs so speedily that the readjustment does not necessitate price changes.
      30. All but one of the following are disadvantages of a system of free or flexible exchange rates. That one is:
          1. encouragement to speculation in the exchanges.
          2. sacrifice of autonomy in a country’s internal economic policy.
          3. tendency toward retaliatory action by countries concerned.
          4. discouragement to traders and investors in the international field.
      31. The greater the divergence between a country’s opportunity cost ratio before trade and the international exchange ratio after trade,
          1. the less will be that country’s gain from international trade.
          2. the greater will be its gain.
          3. the less will be the extent of its specialization.
          4. the less vulnerable will it be to external deflationary influences.
      32. Under monopolistic condition an entrepreneur will hire more of a factor so long as
          1. its marginal physical product continues to be positive.
          2. the value of the marginal physical product is greater than the cost of the additional amount of the factor.
          3. he can sell the extra amount produced.
          4. None of the above is an acceptable answer.
      33. If an industry employs units of a factor with relatively high transfer earnings side by side with other units (of equal quality) whose transfer earnings are lower and if all units of the factor receive the same payment
          1. the former may be said to enjoy a rent-like return.
          2. the latter may be said to enjoy a rent-like return.
          3. the industry may be said to enjoy a rent-like return.
          4. the concept of rent doesn’t apply here.
      34. A necessary condition for “forced saving” is
          1. an expansion of credit resulting in the employment of men and resources previously unemployed.
          2. some people having incomes which don’t rise as rapidly as prices.
          3. banks being completely loaned up.
          4. None of the above is an acceptable answer.
      35. To determine whether the U.S. terms of trade improved between 1940 and 1947, which of the following would you need to know?
          1. The amount of gold imports during the period.
          2. The price (in the same currency) of U.S. imports and exports in 1940 and 1947.
          3. The rate of exchange between the dollar and some other important currencies (say the pound) in 1940 and 1947.
          4. The price level in the U.S. in 1940 relative to that in the rest of the world.
      36. A larger volume of government deficit expenditure will be required to bring about a given increase in employment
          1. the greater the elasticity of the supply of labor.
          2. the greater the velocity of money.
          3. the less the elasticity of supply of all factors of production.
          4. the greater the confidence of businessmen in the effectiveness of the government policy.
      37. A U.S. corporation may pay a net income tax when it has made an “economic loss” rather than “economic profits” because:
          1. the corporate income tax and excess profits tax together may exceed 100% of statutory net income.
          2. the corporate income tax rate structure is regressive.
          3. all interest payments but no dividends are deductible as costs before computing net income.
          4. the corporate income tax is a “benefit tax” on the privilege of doing business in the corporate form and hence takes no account of losses.
      38. A building and lot are valued at $20,000, and it is expected that the property will yield annual net income after taxes of $800 for an indefinite future period. Subsequently, a 2% rise in the tax rate on real property occurs which is expected to be permanent. The tax is capitalized if:
          1. the property is then sold for $10,000.
          2. the property is then sold for $12,000.
          3. the property is then sold for $30,000.
          4. the income from the property increases $400 annually because the tax is shifted.
      39. Assume that in 1937 the equilibrium rate of exchange between the U.S. and Great Britain was $5 to one pound, and that since that time the American price level has doubled and the British price level trebled. According to the theory of “purchasing power parity,” the new equilibrium rate of exchange will be:
          1. $3.33 to one pound.
          2. the same as the old rate.
          3. $7.50 to one pound.
          4. $6.25 to one pound.
      40. Great Britain imports raw materials in order to manufacture finished goods for exports. A devaluation of the pound sterling would
          1. tend to raise the price of British exports in foreign markets because the price of raw materials in Britain would rise.
          2. tend to lower the price of British exports in foreign markets because of the lower cost of pounds in terms of foreign currencies.
          3. have an indeterminate effect because both the above tendencies would exist.
          4. None of the above is an acceptable answer.
      41. Government deficit expenditures will fail to increase the money national income unless
          1. prices rise rapidly as a result of the policy.
          2. the difference between government expenditures and taxation is more than any reduction in private investment that may take place.
          3. wages of workers rise enough to prevent any profits which would be the direct result of the expenditures.
          4. None of the above is an acceptable answer.
      42. Suppose a firm uses 1,000 machines to produce 100,000 units of product per year. Suppose the machines have a useful life of five years, and that the machines are replaced in regular annual amounts. Then the normal demand for machines by this firm will be 200 per year.
          If the demand for the firm’s product rises 10% in some year, what will be the increase in its demand for machinery for this year?
          1. 20%
          2. 10%
          3. 50%
          4. 500%
      43. In general the elasticity of supply of agriculture products is less than that of manufactured products. In the early 1930’s the demand for virtually all goods declined. This would cause
          1. an improvement in the terms of trade of Great Britain who imports agriculture goods and exports manufactured goods.
          2. the opposite.
          3. the terms of trade of countries exporting agricultural products to improve.
          4. None of the above is an acceptable answer.
      44. Given the requirement that all individuals are to sacrifice equally in bearing the burden of taxation, then it follows that the maximum degree of progression which may be introduced into the income tax is limited only by
          1. the rate at which marginal utility decreases with increases in income.
          2. the size of income.
          3. the needs of government for revenue.
          4. the rate at which marginal utility increases with increases in income.
      45. Given: the same amount of labor (taken as representative of all the factors which in country A produces either 80 T or 160 L, in country B produces either 60 T or 50 L. One day’s labor in A produces one T or two L and receives a wage of $10.00. The wage of a day’s labor in B is $6.00. We assume that each country has a constant opportunity cost relationship between the two goods and, therefore, specializes completely in the production of one good. The terms of trade will be:
          1. 10 T for 8 L
          2. 3 T for 8 L
          3. 5 T for 8 L
          4. 3 T for 8 L

 

PART III

[Note: It appears that the typesetting of Part III that starts a new page in the original mistakenly numbered questions from  16 to 22]

Indicate on the separate answer sheet the one best answer to each of the following questions. For each correctly marked answer, credit is given. For each incorrectly marked answer, credit is taken away. For each question not answered, credit is neither given nor taken away.
Allow approximately twenty (20) minutes for this part of the exam.

The following items represent all the available information on the balance of payments for Ruritania in the year 194x. The Ruritanian monetary unit is the dollar.

Interest on foreign bonds owned by Ruritanians	$15
Expenditures of foreign tourists in Ruritania	$10
Exports (merchandise)	$440
Profits on Ruritania’s direct investments abroad	$55
Imports (merchandise)	$225
Expenditures of Ruritanian tourists abroad	$80
Net increase in short-term commercial loans made by Ruritanians	$50
Profits on foreigners’ direct investment in Ruritania	$10
Fees on insurance written for foreigners	$10
Interest on net increase in short-term commercial loans made by Ruritanians	$5
Interest on Ruritanian bonds owned by foreigners	$70
Net long-term loans made by Ruritanians	$85

 

4. 4. 46. On the basis of these items, the total number of dollars supplied by Ruritania in 194x is
          1. $470
          2. $475
          3. $520
          4. $530
          5. $535
      47. On the basis of these items, the total number of dollars demanded on current account (trade and service items) in 194x is
          1. $515
          2. $520
          3. $530
          4. $535
          5. $585
      48. On the basis of these items, the total number of dollars supplied by Ruritania on capital account (capital items) in 194x is
          1. $0
          2. $85
          3. $115
          4. $135
          5. $155
      49. On the basis of these items, the total number of dollars demanded on capital account in 194x is
          1. $0
          2. $85
          3. $115
          4. $135
          5. $155
      50. If Ruritania were on the gold standard, her balance of payments in 194x would result in
          1. an increase in her gold reserves of $115.
          2. an increase in her gold reserves of $105.
          3. an increase in her gold reserves of $15.
          4. a decrease in her gold reserves of $5.
          5. a decrease in her gold reserves of $15.
      51. If Ruritania were on an inconvertible paper standard, her balance of payments in 194x would result in
          1. depreciation of the currency.
          2. inflation of the currency.
          3. devaluation of the currency.
          4. appreciation of the currency.
          5. deflation of the currency.
      52. From the balance of payments data, one can infer that Ruritania is a
          1. debtor country on long-term account.
          2. debtor country on short-term account.
          3. creditor country on long-term account.
          4. creditor country on short-term account.
          5. One cannot infer that Ruritania is in any of the above positions.

Final. May, 1948.

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1947-48
HARVARD UNIVERSITY

This part of the examination is to be written in the blue book AFTER you have finished the multiple choice test.

I
(Forty minutes)

4. 4. 1. Outline and explain the monetary and fiscal policies appropriate to the several phases of the business cycle.

II
Answer any TWO questions
(Twenty-five minutes each)

4. 4. 2. Describe and discuss the principal economic factors influencing the wage policy adopted by the trade unions in the hosiery industry in the period from 1920 to 1940.
      3. Explain the differences between rent, quasi-rent, and interest, and give specific illustrations of each.
      4. Discuss the possible defects of a progressive tax levied upon personal income. In your opinion do these defects arise from progressive personal income taxation as such, or from the particular form of the federal tax in the United States? Explain.

 

Final. May, 1948.

 

Source: Harvard University Faculty of Arts and Sciences. papers Printed for Final Examinations: History, History of Religions,…,Economics,…Military Science, Naval Science. May, 1948. Harvard University Archives, Harvard Final Examinations, 1853-2001. Box 15 of 284.