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Exam Questions Harvard Suggested Reading Syllabus Theory

Harvard. Advanced Economic Theory. Reading lists and exams. Schumpeter, 1948-1949

With the 2025 Nobel Prize in Economics honoring work that has expanded upon Joseph Schumpeter’s felicitous description of economic innovation as a process of “creative destruction”, Economics in the Rear-view Mirror is happy to add the following Schumpeter teaching artifacts from the 1948-49 academic year at Harvard from his course on advanced economic theory. Keeping on the subject of Nobel prizes, it is worth noting that nine future economics laureates were included in Schumpeter’s reading lists for the course.

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Previous Posts:
Schumpeter’s Courses on Economic Theory

Economics 11. Economic Theory, Second Semester, 1934-35. [taken by Wolfgang Stolper]

Economics 11. Economic Theory, 1935-36. [taken by Paul Samuelson]

Economic 101. Economic Theory, 1936-37. [formerly 11]

Economics 101. Economic Theory, 1937-38.

Economics 103. Advanced Economic Theory, 1941-42.

Economics 103b. Advanced Economic Theory, 1947-48. [103a taught by Gottfried Haberler]

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Course Enrollment
1948-49

[Economics] 203  (formerly Economics 103a and 103b). Advanced Economic Theory (Full Course). Professor Schumpeter

Fall Term:
Total 21. 17 Graduates, 2 Public Administration, 2 Radcliffe.

Spring Term:
Total 10. 8 Graduates, 2 Public Administration.

Source: Harvard University. Report of the President of Harvard College, 1948-49, p. 77.

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1948-49
Economies 203a
Fall Term

The primary object of this course is to train the students in the art of conceptualizing the salient features of the economic process. But discussion of individual problems will give the opportunity of rehearsing critically large parts of traditional theory, old and new. The program for this term includes, first, a preliminary survey of certain fundamental nations, especially determinateness and stability, second, the general dynamics of economic aggregates, third, the general theory of the behavior of households and firms. Though some knowledge of the calculus and of differential equations is desirable, purely mathematical aspects will not be stressed.

The student is supposed to be familiar with such standard works as Marshall’s Principles, Wicksell’s Lectures, Vol. I, Keynes’ General Theory,* Chamberlin’s Monopolistic Competition, Hicks’ Value and Capital, and Fisher’s Theory of Interest (out of print). To these, which are also required in several other courses, and part of every student’s equipment, should be added.

*(not available until October 29)

E. Lundberg, Studies in the Theory of Economic Expansion (King & Son, 1937) and for students with adequate mathematical preparations.

P. A. Samuelson, Foundations of Economic Analysis, 1947.

Students must use their own judgments as regards the extent to which they will avail themselves of the following additional suggestions which also stand instead of reading-period assignments:

P. A. Samuelson, Statics, “Dynamics, and the Stationary State,” Review of Economic Statistics, February 1943.

J. Tinbergen, “Suggestions on Quantitative Business Cycle Theory,” Econometrica, July 1935.

F. Modigliani, “Liquidity Preference, Interest, and Money,” Econometrica, January, 1944.

Allen and Bowley, Family Expenditure, 1935.

Colin Clark, The Conditions of Economics Progress, 1940.

Arthur Smithies, “The Boundaries of the Production Function and the Utility Function” (in Explorations in Economics, Essays in Honor of F. W. Taussig, 1936, II, Ch. 11).

T. De Scitovszky, “Price under Monopoly and Competition,” Journal of Political Economy, October, 1941.

T. Haavelmo, “The Interdependence between Agriculture and the National Economy,” Journal of Farm Economics, November, 1947.

G. Cooper, “The Role of Econometric Models in Economic Research,” Journal of Farm Economics, February 1948.

M. Reder, “Monopolistic Competition and the Stability Conditions,” Review of Economic Studies, Vol. VIII, No. 2.

N. Kaldor, “A Classificatory Note on the Determinateness of Equilibrium,” Review of Economic Studies, Vol. I, No. 2.

Source: Harvard University Archives. Syllabi, course outlines and reading lists in Economics, 1895-2003. Box 4, Folder: “Economics, 1948-49 (2 of 2)”.

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HARVARD UNIVERSITY
ECONOMICS 203a
February 1949

One question may be omitted. Arrange your answers in the order of the questions.

  1. Consider the concept of the Stationary State both as a state of society that is to be expected in the near or distant future and as a methodological tool. When considering it in the latter sense, contrast it with the concepts of Economic Statics and of Static Equilibrium.
  2. Analyze the profit item of the usual income statement of a corporation.
  3. State the theory of interest which you prefer to others and give your reasons for this preference; then discuss, from the standpoint of this theory, how “technological progress” affects the rate of interest.
  4. Discuss Cournot’s Duopoly and explain the shortcomings of this schema.
  5. What has been, in your opinion, the upshot of the recent controversy on the “marginal-productivity theory of wages?”
  6. What are the reasons for expecting that monopoly prices are more “rigid” than competitive prices?

Source: Harvard University Archives. Harvard University, Final examinations 1853-2001. Box 16, Bound volume Examinations, Social Sciences Feb. 1949.

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Spring Term
1948-49
Economics 203b

Reference is made to the Reading List for the preceding term, both as regards the general scope of this course and as regards certain fundamental works with which students are supposed to be, or to make themselves, familiar (Marshall, Wicksell, Keynes, Chamberlin, Fisher, Lundberg, and Samuelson) and all of which are available in the Harvard libraries, although sone are out of print. The topics to be dealt with in this term are grouped into four approximately equal parts, each of which is to cover about three weeks. Of the books and papers to be mentioned below, three are taken over from the fall term list.

  1. Restatement, with some additions and further illustrative applications, of the essentials treated in the Fall Term.

American Economic Association, H. S. Ellis ed., Survey of Contemporary Economics, Chs. 10 (Samuelson) and 11 (Leontief).

  1. The Process of Accumulation and the idea of Balanced Advance

R. F. Harrod, Towards a Dynamic Economics, 1948

R. G. Hawtrey, “Mr. Harrod’s Essay in Dynamic Theory,” Economic Journal, September, 1939

E. D. Domer, “Capital Expansion,” Econometrica, April, 1946

E. D. Domar, “The Problem of Capital Accumulation,” American Economic Review, December, 1948

H. Froehlich, “Income Determination and Investment,” ibid. March, 1948

T. C. Schelling, “Capital Growth and Equilibrium,” ibid. December, 1947

L. R. Klein, “Notes on the Theory of Investment,” Kyklos, International Review of the Social Sciences, Bern, Volume II, 1948, fasc. 2

J. M. Keynes, “The Process of Capital Formation,” Economic Journal, September, 1939

  1. Money and Real Income. Wages and Employment

A. C. Pigou, Equilibrium and Employment, 1941.

S. C. Tsiang, “Professor Pigou on Real Wages and Employment,” Economic Journal, December 1944

T. Haavelmo et al., “Multiplier Effects of a Balanced Budget,” Econometrica, October, 1945, and April, 1946

H. M. Somers, “The Impact of Fiscal Policy on National Income,” Canadian Journal of Economics and Political Science, August, 1942

J. L. Mosak, “Wage Increases and Employment,” American Economic Review, June, 1941

J. T. Dunlop, “The Demand and Supply Functions for Labor,” American Economic Review, May, 1948

J. T. Dunlop, “Productivity and the Wage Structure,” Income, Employment and Public Policy (Norton & Company, 1948)

H. W. Singer, “Wage Policy in Full Employment,” Economic Journal, December, 1947

N. Kaldor, “Stability and Full Employment,” Economic Journal, December, 1938

  1. Transformation or Disintegration of Capitalism

C. Clark, The Conditions of Economic Progress, 1940

G. J. Stigler, Trends in Output and Employment (National Bureau Publ. 1947)

Source: Harvard University Archives. Syllabi, course outlines and reading lists in Economics, 1895-2003. Box 4, Folder: “Economics, 1948-49 (2 of 2)”.

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1948-49
HARVARD UNIVERSITY
ECONOMICS 203b

One question may be omitted. Arrange your answers in the order of the questions.

  1. Prove and discuss Haavelmo’s theorem that the imposition of a tax may lead to an increase of gross national income by an amount exactly equal to the tax.
  2. Discuss Kaldor’s proposition that a state of full employment is essentially unstable.
  3. In what sense is it true (a) that capital accumulation tends to exhaust investment opportunities and (b) that exhaustion of investment opportunities induces not only stationary conditions but also depression (underemployment)?
  4. Analyze the relation between employment and a general variation (e.g. an increase) of (a) money wage rates (b) real wage rates. What has either case to do with the so-called Ricardo effect?
  5. Discuss Harrod’s “dynamical schema.”

Source: Harvard University Archives. . Harvard University, Final examinations 1853-2001. Box 16, Papers Printed for Final Examinations, History, History of Religions, Government, Economics,….June 1949.

Image Source: Joseph Schumpeter in his Harvard office published in the Harvard Class Album 1946.

Categories
Chicago Exam Questions

Chicago. Economic Theory Preliminary Examination. Griliches Copy. Winter, 1957

There is something of a mystery about the following transcription of the “Economic Theory I” Preliminary Examination for the Ph.D. and A.M. Degrees at the University of Chicago from the Winter quarter of 1957 that I found in the Zvi Griliches papers at the Harvard University archives. It does not match the Economic Theory I preliminary examination from the same Winter Quarter found in the Milton Friedman papers at the Hoover Institution archives. The most likely explanation is that some anonymous soul simply failed to have updated the quarter of the exam in a copy-and-paste rough draft.. The mystery then, is which came first, the Friedman copy or the Griliches copy?

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Previously transcribed and posted Preliminary and Field Exams from the economics graduate program of the University of Chicago

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ECONOMIC THEORY I
Preliminary Examination for the Ph.D. and A.M. Degrees

Winter Quarter 1957

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the Examination will be sent to you by letter after results on all preliminary examinations have been received.

Answer all questions: Time: Four hours.

Do section I of the examination on this paper and turn it in to the proctor with the rest of your examination. You are to do sections II-VII separately.

  1. Indicate whether each of the following statements is true (T), false (F), or uncertain (U). Explain briefly the basis for your answer.
    1. A tax on a product whose supply is of zero elasticity will have no effect on resource allocation.
    2. If factors of production are used in absolutely fixed proportion in the production of a particular product, the demand for each of the factors by the producers of the product will be completely inelastic with respect to price.
    3. Since 1951 interest rates have risen by about 50 percent whereas real wages have risen only by approximately 24 percent. This implies that firms are and will be using more labor per unit of capital than they did in 1950.
    4. An income tax has no resource misallocating effects.
    5. A competitive firm will increase its demand for factor A as a result of a fall in the price of factor B.
    6. “A monopolist has no supply curve.” Hence it is impossible to predict his response to a shift in the demand curve facing him.
    7. Budget studies have yielded an income elasticity of demand for food of .5 for urban families and of . 35 for farm families. This implies that farm families have substantially different tastes or consumption habits.
    8. Price stabilization at the mean of fluctuating prices would harm consumers.
    9. Product A is one of the major inputs used in the production of product B. Price control is imposed on product A, but not on product B, at a level below the equilibrium price of A. This will result in a fall of the price of B.
    10. A tax of 50% of the gross sale price of all new automobiles in the U. S. will in the short run tend to double the market value of used automobiles, and in the long run tend to double the gross market price of new automobiles as well.
  2. Suppose the armed forces want to raise a fixed number of men. One way to do this would be to set a price at which the number of volunteers would equal the number wanted. Another way would be to set a lower price and draft the difference between the number wanted and the number volunteering. Assume that each person receiving a draft notice would be permitted not only to enter as a draftee but also either to buy a substitute or to be a substitute for someone else.
    Contrast the two schemes in terms of the personnel secured, the pay received, and the source of this pay.
  3. In a recent study, David Blank and George Stigler note the existence of an interrelation between the demand for higher education and the supply of faculty for institutions of higher education. “For”, they write, “the very presence of a much increased demand [for higher education] … carries with it a much increased supply of trained individuals” from whom faculty members can be recruited.
    1. What do you regard as the essential feature of the interrelation? Can you cite other examples? Contrast with specific examples where this particular interrelation does not arise.
    2. Suppose the increased demand for higher education led to no increase in the student body but was met entirely by severer rationing, by price or otherwise, of entry into college. Would the statement quoted above be rendered false?
      Justify your answer.
  4. Producers in one area of goods that are also produced elsewhere often claim that the distant producers keep their high quality product at home and sell only their low quality goods elsewhere. On the other hand, consumers often complain that local producers ship all their high quality products elsewhere and sell only the poor quality material locally (as in the standard California complaint that you can’t but a decent orange in retail markets in California). Obviously, either group might be right in some special case. But can you think of any general factors that would on the average tend to produce the one result or the other? I.e., in any particular case, what indirect information would you consider relevant in forming a judgment about which was right?
  5. We frequently speak of “the substitution of capital for labor”. What do you take this phrase to mean (a) for an individual firm; (b) for the economy as a whole? Does your interpretation allow for the fact that the major part of the cost of new capital equipment is labor cost?
  6. Indicate briefly the meaning of each of the following phrases, identify the economist (or economists) associated with each, and state his major contribution to economics:
    1. Pareto optimum
    2. Pigou effect
    3. Walrasian equilibrium
    4. Schumpeterian innovators
    5. Cobb-Douglas production function
    6. Conspicuous consumption
    7. Wicksellian natural rate of interest
    8. Contract curve
  7. Many families carry life insurance for the husband, and very few carry it for the wife or children. There have been several attempts to explain this. Some say that the loss from the death of the wife or children is mostly a psychic loss, and psych losses cannot be insured. Others say that the loss from the death of the wife or children is too small to be worth insuring. Evaluate these arguments. Can you give an explanation consistent with rational behavior?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1955-1957”.

Categories
Exam Questions Harvard Macroeconomics

Harvard. General Exam in Macroeconomic Theory. Spring 1993

 

 

The following general examination for macroeconomic theory (Spring 1993) has been transcribed from a collection of general exams at Harvard from the 1990s provided to Economics in the Rear-view Mirror by Abigail Waggoner Wozniak (Harvard economics Ph.D., 2005). Abigail Wozniak was an associate professor of economics at Notre Dame before being appointed a senior research economist and the first director of the Federal Reserve Bank of Minneapolis’ Opportunity & Inclusive Growth Institute.

Economics in the Rear-view Mirror is most grateful for her generosity in sharing this valuable material.

Because the “Wozniak collection” is over 90 pages long, it will take some time for all the exams to get transcribed. To date the following transcriptions are available for:

Spring 1991

Microeconomics; Macroeconomics

Spring 1992

Micro- and Macroeconomics

Fall 1992

Micro- and Macroeconomics

Spring 1993

Microeconomics

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HARVARD UNIVERSITY
DEPARTMENT OF ECONOMICS

Economics 2010d: Final Examination
and
GENERAL EXAMINATION IN MACROECONOMIC THEORY

Spring Term, 1993

For those taking the GENERAL EXAM in macroeconomic theory:

  1. You have FOUR hours.
  2. Answer a total of SIX questions subject to the following constraints:

— answer both questions from Part I;
— answer two questions from Part II;
— answer two questions from Part III.

For those taking the FINAL EXAMINATION in ECONOMICS 2010d (not the General Examination):

  1. You have THREE hours.
  2. Answer a total of four questions subject to the following constraints:

— DO NOT ANSWER ANY questions from Part I;
— answer two questions from Part II;
— answer two questions from Part III.

PLEASE USE A SEPARATE BLUE BOOK FOR EACH QUESTION, AND WRITE THE QUESTION NUMBER ON THE FRONT OF THE APPROPRIATE BLUE BOOK.

PLEASE PUT YOUR EXAM NUMBER ON EACH BOOK.

PLEASE DO NOT WRITE YOUR NAME ON YOUR BLUE BOOKS.

*  *  *  *  *  *  *  *  *  *  *  *  *  *

Part I. (Answer both questions)

Question 1:

Consider the following dynamic, perfect-foresight version of the IS-LM model:

R=R-\dot{R} /\rho

r=\alpha y-\beta m

\dot{y} =\gamma \left( d-y \right)

d=\lambda y-\theta R+g

where

R is the long-term interest rate,
r is the short-term interest rate,
y is output,
m is (exogenous) real money balances,
d is demand,
g is a measure of (exogenous) fiscal policy,
and all parameters are positive and 0<\lambda <1.

    1. Give an interpretation of each equation.
      (Hint: When long-term interest rates rise, bond prices fall.)
    2. Write the model using two variables and two laws of motion. Identify the state (non-jumping) variable and the costate (jumping) variable.
    3. Draw the phase diagram, including the steady-state conditions, the implied dynamics, and the saddle-point stable path.
    4. Describe the effects of an immediate permanent decrease in g. What happens to short-term and long-term interest rates?
    5. Describe the effects an announced future permanent decrease in g. (This scenario is also known as the Clinton plan). What happens to short-term and long-term interest rates?

Question 2:

Endogenous Money

Monetary aggregates, such as the monetary base and broader concepts like M1 or M2, appear to be procyclical. It is sometimes argued that this pattern can be explained from models of “endogenous money,” that is, frameworks in which money moves in response to changes in the economy.

  1. Suppose that the monetary authority varies the money supply in order to maintain a desired path of the price level, for example, to maintain price stability. Can this monetary rule create a procyclical pattern for money even if money has no effect on real variables? What happens if the monetary authority targets a nominal interest rate instead of, or in addition to, the price level?
  2. Suppose that the monetary authority wants to peg an exchange rate, rather than the domestic price level. Would the targeting of an exchange rate create a procyclical pattern for money?
  3. Does the idea of endogenous money imply that broad aggregates like M1 or M2 will be more procyclical than a narrow aggregate like the monetary base?
  4. Can the idea of endogenous money explain why money and output move together on a seasonal basis (using seasonally-unadjusted data!)?
PART II

Answer any two of the following three questions. Be sure to use a separate bluebook for each answer.

  1. “It’s absurd to think that monetary policy actions, as conventionally implemented by central banks in advanced industrialized economies, have any more than a trivial impact on either real economic magnitudes or prices. For example, in the United States an enormous financial market holds and trades approximately $4 trillion of government securities and more than that amount of debt securities issued by other borrowers, yet supposedly the difference between a highly “expansionary” monetary policy and a highly “restrictive” monetary policy amounts to whether the central bank buys $10 billion more or less of government securities over the course of an entire year. Hah! Open market operations in such trivial amounts (compared to the size of the economy and the financial markets) can’t have much impact on anything. Further, since the majority of U.S. bank liabilities are not subject to reserve requirements, the idea that these open market operations affect the economy by regulating the banking system’s ability to create money and/or extend credit doesn’t make sense either.”
    Construct the strongest argument you can to disagree with this statement.
  2. The U.S. Treasury has just announced its intention to change the maturity structure of its outstanding debt by issuing fewer long- and medium-term securities and more short-term securities. The stated rationale for this change is to save on the government’s interest payments. (Long-term Treasury bonds currently yield around 7%, short-term bills around 3%, and medium-term notes somewhere in between depending upon the maturity.)
    1. Under what assumptions would this kind of debt management action actually deliver reduced interest costs over the long run?
    2. Under what assumptions would this kind of debt management action not deliver reduced interest costs over the long run?
    3. Under what assumptions would this kind of debt management action not deliver reduced interest costs over the long run, but reduce the government’s budget deficit over the long run anyway?
  3. —
    1. Evidence drawn from the experience of OECD countries over the last three decades strongly suggests that disinflations (that is, reductions in the rate of increase of prices) are typically costly, in the sense of involving foregone real output compared to what a disinflating economy would otherwise have produced if its inflation rate had remained unchanged. What features of economic behavior account for this foregone output? In answering, be specific about how the elements to which you point affect real output. Also indicate whether your answer implies that disinflations brought about by restrictive monetary policy are likely to be more or less costly (again, in the sense of foregone output) than disinflations that occur for other reasons.
    2. In light of your answer to (a), why do you think there is not more discussion of the “gain” associated with increasing inflation rates, to parallel the usual discussion of the “sacrifice” associated with disinflation?
Part III. (Answer two questions)

Answer any two of the following three questions.

Question 6

    1. Consider a small open economy characterized by the following equations

Y\  =\  C\left( Y \right) +I\left( r^{\ast} \right) +G+X\left( e \right) -eM\left( e \right)

M/P\ =\ L\left( Y,r^{\ast} \right)

where all variables have their standard meaning, e is the real exchange rate, e = EP*/P and * denotes a foreign variable. Assuming that the price level is fixed, what is the effect of an increase in G on output and net exports under fixed and flexible exchange rates? What assumptions on X and M do you need to make in the flexible rate case?

    1. Now consider another small open economy with a representative agent that chooses consumption to maximize the present discounted value of consumption

\max_{\left\{ c_{t} \right\}} \int_{0}^{\infty} e^{-\alpha t}\  ln\  c\  dt

where c denotes consumption, α the discount rate, and t indexes time. The agent receives a constant flow income of \bar{y} and can borrow and lend at the world interest rate which is also α. What is the economy’s current account? Suppose that at time 0 the government decides to erect a monument to its own greatness. The monument will cost γ in time 0 income. What is the effect on the current account if the government finances construction by confiscating αγ from \bar{y} at each instant? What is the effect on the current account if the government issues bonds to finance construction and postpones the implementation of the income tax until time t=\Gamma >0?

(c) Speculate as to why the effect on the current account in the flexible rate part of (a) differs from the bond financing part of (b)?

Question 7

Suppose that the exchange rate (x) depends on some fundamentals (f) and the expected rate of appreciation or depreciation as follows:

x\left( f_{t} \right) =f_{t}+\frac{1}{dt} E_{t}dx\left( f_{t} \right).

Suppose further that fundamentals follow a Brownian motion without drift

df=\sigma dw

where w is a Wiener process.

    1. Use Ito’s lemma to write a differential equation for x and solve it. [Hint: the solution should contain three terms, two of which should involve exponentials and the third should be f].
    2. Suppose that initially f < \bar{f} and that each time the fundamentals reach the level \bar{f} , the government follows a policy of resetting the fundamentals to \bar{f} -  c < \bar{f}. What boundary conditions allow you to solve for x(f). (Hint: consider what happens when the government intervenes and when f approaches -∞.)
    3. Graph the solution for x(f) from (b). What effect does the policy of intervention at \bar{f} have on the variance of x? Is var(x) < var(f)?
    4. What does your answer in part (c) lead you to conclude about the desirability of exchange rate systems such as the European Monetary System in which the currency government maintains the currency between two bands?

Question 8

Consider a firm with the following loss function

\Pi \left( p_{i},p,m \right) =-\gamma \left( p_{i}-p-\alpha \left( m-p \right) \right)^{2}

where pi is the firm’s nominal price, p is a price index, m is the money supply, and \gamma is a positive constant. All variables are in logs. Suppose that initially

pi = p = m = 0.

    1. Suppose that the firm incurs a fixed cost β each time it alters its nominal price. Characterize the optimal policy in the face of a once and for all change in m given that the price index remains constant and that the firm discounts future losses at the rate r. How does this policy depend on the curvature of the loss function (γ) and the discount rate (r)?
    2. Suppose that the economy is made up of many firms just like the one above and that the log price index is just the average of their log prices

\left( p=\int p_{i}di \right).

What policy would these firms follow in the face of a once and for all change in the money supply if they could agree to follow identical strategies? How does your answer differ from part (a). Interpret the role of α.

    1. How would you expect your answer to part (a) to change if instead of a one time change, the money supply followed a process with variance σ.

Source: Department of Economics, Harvard University. Past General Exams Spring 1991-Spring 1999, pp. 53-59. Copy provided to Economics in the Rear-view Mirror by Abigail Wozniak.