Author: Irwin Collier

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The original plan of Economics in the Rear-View Mirror was to provide a single artifact for each post. Larger (composite) data sets are given dedicated pages (e.g. Harvard Ph.D.’s in economics 1875-1926; Chicago Ph.D.’s in economics 1894-1926; Economics Rare Book Reading Room). Sometimes I come along a group of artifacts that are best kept together so I end up with a post like today’s that prints out as more than 25 pages of text. 

Today’s treasure is a fairly complete run of MIT general examination questions in macroeconomics for the period 1959-1971 found in a folder in the Evsey Domar papers at the Economists’ Papers Archive at Duke University. For a few of the exams we even have handwritten records indicating the questions chosen by the examinees and the grades awarded (I have omitted the names).

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May 22, 1959
General Examination in Macroeconomics

Answer four questions, including at least one from each group.

I.

1. (a) Explain the basic economic philosophy which forms the foundation of modern national income (and gross product) estimates in Western countries.
   (b) Show how this philosophy is transformed into specific criteria used by the U.S. Department of Commerce in their estimates of Gross National Product, National Income, and Consumer Disposable Income. Be as specific as you can.
2. Present a careful analysis of the problem of “Price Flexibility and Employment” and trace its discussion (that is, of its principal points) through economic literature beginning with Keynes’ General Theory.
   What practical conclusions follow from this discussion?
3. It was repeatedly said in 1946 that “Increased production is the best cure against inflation.” Comment on this statement as completely as you can. (Hint: Consider the dual aspect of the production process.) In the light of your finding, do you think a labor strike to be deflationary or inflationary?

II.

4. Construct a “flexible” multiplier-accelerator model in which the government plays an active role. That is, it levies a proportional income tax and engages in stabilizing expenditures.
   1. Imagine first that the tax on last year’s income is collected this year, while consumers recon their disposable income on a cash basis (i.e. income earned minus taxes actually paid). Government expenditures are constant. How do changes in the tax rate affect the behavior of the model?
   2. If the tax system should go on a withholding basis, so that the tax on this year’s income is collected this year, how does that affect the stability and other characteristics?
   3. Taking taxes as in (b), suppose government expenditures are proportioned to the gap between full employment income and last year’s income. Is this stabilizing?
   4. Suppose government outlays are a decreasing linear function of the observed rate of change of income. Is this stabilizing?
5. It is often said that the cause of any depression is the previous boom and its “excesses.” Does this make sense in terms of modern business cycle theory?

III.

6. “The purpose of taxation is never to raise money but to leave less in the hands of the taxpayer.” Comment fully and critically. Can you identify the author? (No great penalty if you cannot.)
7. To the best of your ability, try to analyze the incidence of a corporate income tax. What empirical information would you need for this purpose? (Please be reasonable).
8. “People are always willing to become wealthier. The problem of economic growth in advanced countries is: will the public be willing to add to its holdings of physical assets an amount equal to the unconsumed portion of full employment output?” Discuss fully including a description of the alternatives to holding physical assets, the efficacy of the price system, policy measures.

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February 8, 1960
GENERAL EXAMINATION IN ECONOMIC THEORY

For the old-style exam (microeconomics alone), answer the first question (one hour) and any three of the others in Part I (two hours). For the new-style exam, answer any three questions in Part I (two hours) and any three questions in Part II (two hours), but without including both 3 and 4. Use separate books for Parts I and II.

PART I

1. In a purely competitive economy, the only goods are food (F) and clothing(C), and the only factors are labor (L) and land (T), both fixed in supply. Each household supplies either L or T, but not both. Both goods are produced at constant returns to scale with both L and T. Isoquants are normally curved for both products; and, at any given marginal rate of substitution, a higher ratio of T to L is implied for F than for C.
   1. Show how the economy’s transformation curve for F and C is derived. Could it be either concave or convex or linear, and why?
   2. If everyone in the economy always divides his income equally between F and C, show how this determines uniquely what goods are produced, how they are produced, and for whom.
   3. How is that general equilibrium modified if the government imposes a tax on F and distributes the entire proceeds equally among all of the labor-supplying households. (Assume for simplicity that the tax and subsidy involve no administrative costs.)
   4. Would there be better ways of achieving the same redistribution of income? Explain fully why or why not.
2. The demand for a monopolist’s produce is given by p = 50 – .001q. Within the relevant range, his total cost as a function of his output is C = 40q – .0005q².
   1. In the monopolist’s long-run equilibrium, what are his price, output, and profit?
   2. How are those magnitudes affected if demand now increases to p= 56 – .001q?
   3. In general, what factors determine whether a monopolist’s equilibrium price will rise or fall in response to an increase in demand? Explain how the actual result in the present example fits in with those general principles.
3. Plant capacity for a certain product costs $6 per year per unit of output. Given a plant of any particular size, any output up to the capacity level can be produced at a variable cost of $12 per unit; and outputs in excess of capacity are impossible. Demand is given by p = 24 – .001q (where p is the price of the product in dollars per unit and q is the quantity of product demanded per year).
   1. What are the long-run-equilibrium prices, outputs, and profits under conditions of (i) monopoly and (ii) pure competition?
   2. How are those equilibrium magnitudes affected in both the short and long run if new technological knowledge suddenly makes it possible to produce the product with a new type of equipment at a capacity cost of $5 per year per unit of output and a variable cost of $9 per unit of output. (Assume that, in the short run, new capacity can be added but none of the pre-existing capacity wears out. In the long run, all of the old capacity does wear out.)
4. Show how an individual’s labor-supply curve can be derived from his basic preferences for leisure and income, assuming that he also has a fixed income from other sources. Then show the comparative effects of three alternative taxes that might be imposed to extract the same revenue from this man: (a) a lump-sum or poll tax, (b) a proportional income tax, and (c) a progressive income tax.
5. Summarize Ricardo’s theory of rent, and evaluate its correctness and realistic relevance. In what sense, if any, does rent not enter into cost? Explain carefully.

PART II

1. Discuss the role played by population growth in modern theories of economic development and business cycles. Be specific.
2. Write an essay on the subject of “The General Theory After Twenty-Five (almost) Years.” Include in it, among other things, your evaluation of the usefulness of the book from the point of view of: (a) an advanced capitalist economy like the U.S.; (b) an underdeveloped mixed economy like India; (c) a centrally directed socialist economy like the USSR.
3. Present your favorite theory (traditional, eclectic or entirely original) of the business cycle. Explain the empirical tests which you would subject it to. Be specific.
4. Present an explanation of the causes of the current inflation in this country. Indicate the empirical tests which your explanation would have to pass. Be specific.
5. (a) Explain the reasons why the economic activities of the government create special problems in national income (or gross product) accounting. Analyze critically the treatment of these problems by the U.S. Department of Commerce.
   (b) “Existing methods of international comparisons of per capita national income have an upward bias in favor of advanced countries.” Comment. “Don’t forget to indicate what these methods are.)

 

Comprehensive Exam Grades in Macro Theory
MIT Feb. 1960

[Student]	Q1	Q2	Q3	Q4	Q5	Average	Remarks
[1]	50 (F)		30 (F)		60(D)	F+	Fail
[2]		60(C-)	20(F-)	60(C-)		D ?	[guess: “Directed information to who? , ≥4 fail”]
[3]		70 (C)	65 (C)		70 (C)	C	Fair –
[4]	70 (C)		70 (C)			C	Fair –

A: 90-100
B: 75-89
C: 60-74
D: 50-59
F: less than 50

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September 19, 1960
General Examination in MACROECONOMICS

Answer three questions; at least one from each part.

I.

1. Discuss Savings as an economic problem.
2. a. Write an essay on the subject of “The Problem of Intermediate Products in National Income and Product Accounting.” Be as comprehensive as you can.
   b. Compare briefly the treatment of intermediate products in the Input-Output and Flow-of-Funds systems.
3. Write a comprehensive essay on the subject of “The Economic Significance of the Rate of Interest.”

II.

1. Write on the capital-output ratio as a tool for economic analysis, including some comment on:
   1. The problem of defining, measuring and interpreting the concept.
   2. Known facts about the historical course of the ratio..
   3. The role the concept plays in theories of growth and fluctuations.
2. What are the facts about the relative magnitude of cyclical fluctuations in the output of capital goods and consumer goods? What are the theoretical implications of the facts as you know them? Discuss in this light the mildness of post-war economic fluctuation in the U.S.
3. Write an essay on the contribution to the theory of economic growth of one of the following: Wicksell, Schumpeter, Kaldor, Tobin.

 

Macroeconomics Grades
Sep. 1960

	Part I			Part II			Aver.
	Q1	Q2	Q3	Q1	Q2	Q3
[1]			G-	G-		F+/G-	G-
[2]	G		F+	F-/Fail
[3]	G+		F+	G-			G-
[4]	G+		G/G+	G-			G/G+
[5]			G	G+	G-		G
[6]		G	G			G	G

 

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February 6, 1961
GENERAL EXAMINATION IN ECONOMIC THEORY
Part II—Macroeconomics—Two Hours

Answer THREE questions, at least ONE from each Part. Use a separate examination book for each question.

Part I.

1. Write a comprehensive essay on the subject of “International Comparisons of National Income and Product”.
2. Discuss saving as an economic problem. Trace the treatment of saving in the relevant economic literature.
3. Write a comprehensive essay on the subject of “The Economic Significance of the Rate of Interest”.

Part II.

1. Assume that inventory behavior is governed in the following Metzlerian way:
   1. Desired inventory is proportional to expected sales.
   2. Planned inventory investment behaves according to the capital stock adjustment principle (“flexible acceleration”).
   3. Expected sales equal last period’s sales.
   4. Current sales are proportional to current income, with unexpected sales made from stock.
   5. Income is the sum of Sales, exogenous government and fixed investment expenditures, and inventory investment (including unplanned!).

Now suppose operations research succeeds in (i) reducing the desired inventory-sales ratio and (ii) increasing the speed of adjustment. What effects will this have on the cyclical behavior of the system?

2. Discuss the role of (i) floors and ceilings and (ii) autonomous investment in theories of growth and fluctuation, and say something about the realism of each concept.
3. Formulate a one-sector model of economic growth using the following assumptions:
   1. One commodity, usable either as consumer good or as capital good.
   2. Its output is given by a production function with the stock of the capital good and labor as inputs, under constant returns to scale. (Consider various degrees of substitutability.)
   3. Depreciation proportional to stock of capital.
   4. Supply of labor grows geometrically, and exogenously, and is inelastically supplied.
   5. Competitive profit-maximizing rules.
   6. All profits are saved, all wages consumed.

Within this model, discuss the properties of the full-employment growth path (i.e. the development of output capital, wages, etc., which will equate desired saving and investment at full employment).

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May 22, 1961
GENERAL EXAMINATION IN ECONOMIC THEORY
Macroeconomics—Two Hours

Answer THREE questions, at least ONE from each part. (Course XV students answer ONE question from each part only.) USE A SEPARATE EXAMINATION BOOK FOR EACH QUESTION.

Part I.

1. Write a comprehensive essay on the subject of “The Measurement of Economic Growth”. Include in it the description of existing methods, their rationale (the most important part) and your suggestions for improvement.
2. Write an essay on “The General Theory after Twenty-Five Years”.
3. a. Explain the nature and the rationale of the definition of the concept of money in “Price Flexibility and Employment” problems.
   b. “If the ‘Balanced-Budget Multiplier’ is correct, isn’t Say’s Law also correct?” Comment fully.

Part II.

4. “By making existing capital assets obsolete, technological progress is alleged to create new investment opportunities and thus raise the level of income and employment. But to the extent that such obsolescence was foreseen, the assets were depreciated over a shorter period and thus gave rise to larger gross savings. Therefore, expected technological progress fails to stimulate the economy.” Comment fully.
5. Present your favorite (traditional, eclectic, or original) business cycle theory. Indicate the empirical tests to which it will be subjected.
6. “In order to prevent a cost-push inflation, wage rates in each firm or industry should not increase faster than its labor productivity; price increases will thus be avoided.”
   Comment fully and critically; indicate and justify your wage and price policy.

 

General Exam Grades “MacroTheory” May 22, 1961

	[Part] I			[Part] II
[Student]	Q1	Q2	Q3	Q4	Q5	Q6	Average
[1]		G	G-/F+	F+			G-
[2]	G-				G-/F+	F-	F+
[3]		F+	G-		G		G-
[4]	E-				G-	E-	G+
[5]			G+		G-	F	G-
[6]	E-/G+	G		F			G
[7]			G+	G-		F-	G-
[8]	E-	E-			G+		E-
[9]			Failed		F	F-/Failed	Fail+
[10]	F+	G			G-		G-
[11]		G			G	F-	G-
[12]		G-			G-/F+	F-	F+
[13]	F+		G-		G		G-
[14]		G+	G-		G		G
[15]	Failed	G			G-/F+		F+
[16]			F-/Failed		Failed		Failed
[17]		G-/F+			F		F+

 

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September 18, 1961
GENERAL EXAMINATION IN ECONOMIC THEORY
Macroeconomics—Two Hours

Answer FOUR questions, TWO from each part. USE A SEPARATE EXAMINATION BOOK FOR EACH QUESTION.

Part I.

1. State, explain and justify the treatment of government expenditures (Federal, state and local) in the computation of national product and its components. Why is government treated differently from other sectors? What is the logical foundation for such treatment?
2. Compare and contrast the Keynesian and the so-called Classical systems.
3. Contrast the investment criteria applicable to (a) an individual firm, (b) the U.S. government, (c) the government of an undeveloped country. Explain clearly your reasons for such differences, if any.
4. Write an essay on “The History of the Consumption Function.” Indicate and evaluate the major contributions. How significant are they? Which one do you prefer and why?

Part II.

1. Describe fully the “economic indicator” approach to economic forecasting. Evaluate its performance. Compare it with the use of projected models of GNP.
2. Describe the long-term trends in (a) population, (b) output, (c) capital, (d) real wage rates, (e) interest, (f) relative shares, (g) capital-output and other important ratios. What constancies have people claimed to observe? What behavior is explicable by a simple neoclassical model? What points to technological change or to various non-neoclassical growth theories? Mention authors as well as theories.
3. Summarize briefly the historical facts on business cycles or fluctuations here and abroad. What theories have been suggested? Besides naming names, give your own best way of cataloguing the different theories (e.g. non-linear, etc.).
4. Give the basic facts on “growth” here and abroad, recently and in history. How could America increase its sustained growth rate? Be analytical and specific.

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February 5, 1962
GENERAL EXAMINATION IN ECONOMIC THEORY
Part II—Macroeconomics
TWO HOURS

Please answer THREE questions, at least ONE from each Part. Use a separate examination book for each question.

Part I.

1. “Existing methods of national product computation exaggerate the rate of growth of real product over time in a given country, and overstate the ratio between the real product of highly developed and of undeveloped countries.”
   Comment fully.
2. Compare and contrast the economic effects (on growth and level of income, employment, income distribution, and on any other phenomena you consider important) of population growth and of the growth of the capital stock.
3. a.Explain the basic assumptions and reasoning used in the “Price Flexibility and Employment” discussions. (If you can, identify the authors involved.)
   b. Explain the nature and definition of the concept of money used in the same discussions.
   c. “If the ‘Balanced-Budget Multiplier’ is correct, isn’t Say’s Law also correct?” Comment fully..

Part II.

1. Analyze a one-sector growth model in which net output is produced by labor and capital by a smooth neoclassical constant-returns-to-scale aggregate production function experiencing no technical change. Net output is divided up into consumption and net capital formation (or investment). Consumption, according to Modigliani, is 100 per cent of income when the capital wealth-to-output ratio is, say, 3, being a fraction at lower ratios and exceeding unity at higher ratios.
   1. First, let labor supply be stationary. Starting with very low capital, describe the evolution of the system’s output, wage rate, interest rate, capital, and various ratios (Q, w, r, k, k/L, Q/L, Q/k, wL/rk, etc.)
   2. Do the same if labor will always grow at 2 per cent per year.
2. Describe and contrast business cycle approaches of (a) The National Bureau of Economic Research, (b) Econometricians like Tinbergen and Klein, (c) other typical modern Evaluate with respect to policy, prediction, explanation and present-day relevance.
3. How can President Kennedy increase “growth” in a world with problems of international payments, possible wage-price “creeps,” fiscal burdens for defense, and stubborn productivity and personal thrift patterns. Prescribe, diagnose, and compromise dilemmas if there are any.

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May, 1962
GENERAL EXAMINATION—MACROECONOMICS

 

Answer three questions, including at least one from each part.

PART I

1. a. Write an essay on the subject of “The Problem of Intermediate Goods in National Income and Product Accounting”.
   b. Suppose you were asked to compute national income and product for an economy consisting of a Prince and a number of slaves, from the point of view of the Prince. Explain the modifications of the usual methods that this assignment will require. Do you think it will result in a larger or a smaller income?
2. A critic of Keynes’ General Theory once said that “What is new in it is wrong, and what is right is old”.
   Comment fully.
3. “The problem of price flexibility and employment is a silly game based on the inclusion of some debtor-creditor relationships and the exclusion of others”.
   Comment fully.

PART II

4. Is an economy which has been growing at full employment (and full utilization of capacity) helped or hindered in the maintenance of full employment (and utilization) by a more rapid rate of growth of the labor force?
5. It is sometimes said that the widespread adoption of scientific inventory control, permitting lower inventory-sales ratios on the average, will have the effect of damping inventory fluctuations. Discuss this theoretically. Do the same for the advent of improved forecasting methods.
6. Discuss the relation between the propensity to save and the rate at which potential output increases.

 

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September 17, 1962
GENERAL EXAMINATION IN ECONOMIC THEORY
Part B—Macroeconomics

TWO HOURS

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

Part I

1. Write an essay on the role of microeconomics in the construction and the testing of macroeconomic theory.

Part II

2. Discuss and evaluate the treatment of government in the U.S. National income Accounts. Give special emphasis to the problems involved in using the figures for intertemporal and international comparison of the role of government both as a user of resources and as a producer.
3. Write an essay on the “history, nature and significance” of the consumption function. 

Part III

4. Discuss the issues of concept, theory, inference, and measurement that are involved in estimating the relation between investment and the growth of potential output.
5. What is your theory of inflation? How does it tie in with modern business cycle theory?

 

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GENERAL EXAMINATION IN MACROECONOMICS
February 4, 1963

ANSWER ONE QUESTION FROM EACH PART (THREE QUESTIONS IN ALL).

Part I.

1. Suppose that in an economy in equilibrium a large number of enterprises operating as proprietorships and partnerships decide to incorporate.
   1. List the principal ways in which the national income accounts might be affected in the short run. (Make explicit any reasonable assumptions you may want to make about real changes in the flows of spending and income.)
   2. What fallacious conclusions might you draw as to structural changes in the economy from these changes in the accounts if you did not know their source?
2. Explain the basic economic philosophy which forms the foundation of national income and product estimates in the United States. Indicate how this philosophy is applied by the Department of Commerce in its estimates of Gross National Product, National income, and Disposable Income. (Be specific.)

Part II.

3. Discuss, making use of an explicit model of income-determination, the various ways in which prices and wage rates enter into the determination of national income. In particular, what are the issues of theory and fact which are relevant to the debate about “underemployment equilibrium”?
4. Identify and discuss, briefly and concisely, the nub of the issues raised by each of the following (where appropriate use an explicit model)
   1. “The rate of interest bears no necessary relation to the quantity or value of the money in circulation. The permanent amount of the circulating medium, whether great or small, affects only prices; not the rate of interest.” (J. S. Mill)
   2. “If it is true that the marginal propensity to consume of wage earners is higher than of profit recipients, one way to cure a deflationary gap and unemployment is to raise the money wage rate.”
   3. “Increased production is the best cure against inflation.”
   4. “The cause of any depression is the previous boom and its “excesses”.”

Part III.

5. Discuss the critical issues of fact, theory, and value that are involved in designing a fiscal-monetary policy for the United States for the mid-1960’s. Elaborate, in particular, the criteria in terms of which you (“as economist”) would evaluate any particular mix of instruments.

 

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General Examination in Macroeconomics
May 13, 1963

Answer three questions in all, including at least one from each part.

I.

1. In the earlier postwar period it was often said that “Increased production is the best cure against inflation.” Comment on this statement. In the light of your comment, do you think a prolonged strike is inflationary or deflationary?
2. a. Set up a reasonable aggregative model appropriate to a closed economy where the money wage rate is rigid ownwards (only downwards).
   b. Assuming that the initial equilibrium configuration yields “full employment” and that the money wage rate cannot fall below the initial equilibrium wage rate, trace the effects on the critical variables of

   (i) an increase in the nominal stock of money

   (ii) a decrease in the nominal stock of money

   (iii) an autonomous fall in the volume of investment

   c. In each case, how would your answers differ, especially as regards the possibility of “under-employment equilibrium”, if the money wage rate, as well as all other prices, were fully flexible?
   d. How would your answers differ if money wage rates were governed by two-way escalator clauses?

3. Write an essay on the theoretical and empirical foundations of an eclectic macroeconomic theory of demand for investment.

II.

4. In Kaldoria, the marginal (=average) propensities to save out of wages and out of non-wages are different. The latter exceeds the former by a considerable margin. Together wages and non-wages exhaust national income. Markets are such that when national income exceeds a certain value Y*, the share of profits in national income tends to rise, and when national income falls short of Y*, the share of profits tends to fall. Finally, all investment is exogenous.
   1. Show that Y* is a stable level of national income.
   2. Calculate the share of profits when national income is Y*.
   3. Can you think of any reasons why Y* should correspond to “full employment”?
   4. Discuss the factual validity of the theory. That is, does Kaldoria resemble any country you know well?
   5. Can you modify the theory to include a marginal propensity to invest out of profits?
5. Suppose investment behavior is such that all investment opportunities which offer a rate of return greater than or equal to some fixed target rate R are instantly adopted. Labor and capital are the only factors of production and constant returns to scale prevail. (Use a Cobb-Douglas production function, if you like.) The labor force grows exogenously at a fixed annual rate g.
   1. What saving rate, relative to national product, will just maintain full employment equilibrium?
   2. How does that saving rate vary with g?
   3. What do you make of the common notion that a rapidly-increasing labor force makes it harder to maintain full employment?
6. Describe the approximate timing of inventory investment during postwar American business cycles, and compare this with the results of some formal model of inventory fluctuations.

 

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September 16, 1963
GENERAL EXAMINATION IN MACROECONOMICS
TWO HOURS

Please answer THREE QUESTIONS, at least ONE from each part. Use a separate examination book for each question.

Part I.

1. a. Write an essay on the subject of “The Problem of Intermediate Goods in National Income and Product Accounting”.
   b. Suppose you were asked to compute national income and product for an economy consisting of a Prince and a number of slaves, from the point of view of the Prince. Explain the modifications of the usual methods that this assignment will require. Do you think it will result in a larger or a smaller income?
2. A critic of Keynes’ General Theory once said that “What is new in it is wrong, and what is right is old”.
   Comment fully.
3. a. Explain the nature and the rationale of the definition of money in “Price Flexibility and Employment” problems.
   b. “If the ‘Balanced-Budge Multiplier’ is correct, isn’t Say’s Law also correct?”
   Comment fully. Explain the nature of both propositions.

Part II.

4. Discuss the role of (a) floors and ceilings and (b) autonomous investment in theories of growth and fluctuations.
   Indicate the empirical tests to which the propositions expounded by you can be subjected.
5. “In order to prevent a cost-push inflation, wage rates in each firm or industry should not increase faster than labor productivity.”
   Comment fully and critically. Indicate and justify your wage and price policy to achieve economic growth and stability.
6. Explain and compare the roles which the growth of population and the growth of capital (separately and together) play in modern growth and business cycle theory.

General Examination Grades in Macroeconomics September 1963

	Questions
Student	1	2	3	4	5	6	Total	Grade
[1]	18	25				22	65	Fair
[2]	29				24	26	79	G
[3]	30	29				29	88	E-
[4]	22		20			23	65	Fair
[5]			29	24		25	78	G

 

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February, 1964
GENERAL EXAMINATION IN ECONOMIC THEORY
MACROECONOMICS—TWO HOURS
[Note: this exam recycled in February, 1968]

Answer THREE QUESTIONS, at least ONE from each part. Use a separate examination book for each question.

Part I

1. Write a comprehensive essay on the subject of “Comparisons of National Income and Product in Time and Space.” Indicate the biases which arise in such comparisons.
2. “The problem of price flexibility and employment is a silly game based on the inclusion of some debtor-creditor relationships and the exclusion of others.” Comment fully. Indicate what definition of money used in your discussion.
3. Write a comprehensive essay on the subject of “The Interrelationships between Money, Prices and the Rate of Interest.” Include brief reviews of the relevant theories.

Part II

4. “In order to prevent a cost-push inflation, wage rates in each firm or industry should not increase faster than its labor productivity.” Comment fully.
5. “If Hansen is correct, the faster is the rate of growth of population, the lower will be the unemployment level in the U.S.” Discuss fully. Include natural growth of population and immigration. In what respect does the growth of population differ from that of the stock of capital?
6. Write an essay on “Floors and Ceilings in Business Cycle Theory.” Indicate the specific theories and your methods of testing each.

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February 8, 1965
GENERAL EXAMINATION IN MACROECONOMICS
TWO HOURS

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

Part I.

1. Write an essay on the subject of “Keynes and Patinkin on the Relation between the Quantity of Money on the One Hand, and Interest Rate, Price Level and National Income on the other.”
2. It is frequently said that existing methods of national income computations exaggerate the present-day American per capita income in comparison with that of less developed countries and in comparison with American income in the past. Comment fully and critically. Are there statistical methods which may impart an opposite bias?
3. Compare and contrast the economic effects (on growth and level of income, employment, income distribution, and on any other economic phenomena you consider important) of population growth and of the growth of the capital stock.

Part II.

4. 4. According to the 1965 Economic Report of the President:
      1. “The general guide for wages is that the percentage increase in total employee compensation per man-hour be equal to the national trend rate of increase in output per man-hour.”
      2. “The general guide for prices calls for stable prices in industries enjoying the same productivity growth as the average for the economy; rising prices in industries with smaller than average productivity gains; and declining prices in industries with greater than average productivity gains.” (p. 108)
         1. What would this policy imply for:
            1. average unit labor costs
            2. average product prices
            3. income distribution
            4. labor allocation among industries and skills
         2. According to theories of inflation you find most persuasive, what aspects of the price-wage mechanism would be most likely to frustrate the Council guideposts that are outlined above?
      5. The U. S. economic recovery from 1961 to the present has been accompanied by less inventory investment, especially in manufacturing, than occurred in previous recoveries. Some pertinent data are presented below.

 

	Manufacturing
	(Monthly averages for year) $ billions
	Sales	Inventories	Ratio
1950	18.6	31.0	1.48
1951	21.7	39.3	1.66
1952	22.5	41.1	1.79
1953	24.8	43.9	1.76
1954	23.3	41.6	1.81
1955	26.4	45.0	1.62
1956	27.7	50.6	1.73
1957	28.7	51.8	1.80
1958	27.2	50.0	1.84
1959	30.2	52.7	1.70
1960	30.8	53.8	1.76
1961	30.9	55.1	1.74
1962	33.3	57.7	1.70
1963	34.7	60.1	1.69
1964	37.1	62.2	1.64

Source: 1965 Economic Report, p. 237.

 

It has been said that this development has

1. 1. substantially improved the ability of the economy to avoid a recession;
   2. made it more likely that if a recession does occur, that it will be milder than it would otherwise have been.
      1. Briefly evaluate the validity of this remark by reference to the data, distinguishing intended from unintended investment to the extent possible. What minimum additional information would be required in order to make a rigorous distinction between intended and unintended inventory investment?
      2. Discuss this observation critically in the context of a sensible model of cyclical fluctuations. Do so on the presumption that improved methods of inventory control have lowered the desired inventory-sales ratio.

REMARK: Part A will be given 1/3 weight. Part B will be given 2/3 weight.

1. 1. 6. Consider several alternative growth models which include technical change, labor and capital. What effects would the following policy measures have on growth rates, output/head and consumption /head:
         1. A decrease in the rate of interest;
         2. An increase in the ratio of investment and savings to toal output;
         3. A decrease in the rate of population growth.

________________________

 

May 17, 1965
GENERAL EXAMINATION IN MACROECONOMICS
TWO HOURS

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

Part I.

1. (A) National product is defined as the sum of all final goods each multiplied by its price.
   (B) National income is defined as the sum of all net incomes of certain recipients.

Discuss the following questions:

i. What is a final good in (A)? What special problems arise from the presence of certain types of organizations?
ii. What is the rationale of multiplying each product by its price? What assumptions are implied in this procedure? Are they realistic?
iii. Whose net incomes are aggregated in (B)? What assumptions does this procedure imply? Are they realistic?
iv. Could you propose changes or improvements in the above procedures? What additional comments would you like to make?

2. Explain the following concepts with a particular stress on the assumptions underlying them.
   1. The ordinary (Keynes’) multiplier
   2. The balanced-budget multiplier
   3. The acceleration principle

Indicate the virtues and defects of each concept and their use in economic analysis.

3. Discuss saving as an economic problem. Trace the treatment of saving before Keynes, by Keynes and after Keynes. Evaluate the contribution of the several authors you mention critically.

Part II

4. Consider a one-sector economy with:
   1. A conventional, constant-returns to scale, diminishing returns, technology
   2. A labor force growing at a constant geometric rate
   3. No technical progress
   4. A ratio of net saving to output which is a falling linear function of the wealth-output (i.e., capital-output) ratio

Trace out the evolution of such an economy under conditions of full employment and full utilization of capacity, starting from an arbitrary stock of capital; and show how its stead-state properties are determined.

5. “The ‘built-in stabilizers’ cannot stabilize the economy at a full employment level but can dampen oscillations.”

Analyze this statement using the following model:

(1) Y_t = C_t + I_t + G_t Income Definition
(2) C_t = α(Y_t-1 –T_t-1) Consumption Function
(3) I_t = β(Y_t – Y_t-1) Investment Equation
(4) T_t = λC_t Tax Equation

Note: the tax equation is the stabilizer in this model. Assume government outlays G_t are constant through time.

6. Some economists believe recent high unemployment levels in the United States are structural in nature, others that the main cause has been a fairly simple Keynesian demand deficiency.
   1. Explain the main elements of the “structuralist” position. (It will be assumed that you understand Keynesian National Income analysis.)
   2. Show how the correct interpretation of these (not mutually exclusive) causes affect the analysis of price level movements in the United States over the past decade, with reference to two or three of the main theories that have been applied.

________________________

 

September 13, 1965
GENERAL EXAMINATION IN MACROECONOMICS
Two Hours

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

PART I.

1. “The problem of price flexibility and employment is a silly game based on the inclusion of some debtor-creditor relationships and the exclusion of others.” Comment fully. Why is a special definition of money required here?
2. “Existing methods of national product computations exaggerate the rate of growth of real product over time in a given country, and overstate the ratio between the real product of highly developed and of underdeveloped countries.” Comment fully and critically.
3. In the early postwar period it was often said that “Increased production is the best cure against inflation.” Comment fully on this statement. Assume that the increase in output is indeed possible, but indicate what kind of output you have in mind. What other information would you require? In the light of your comments, do you think that a prolonged strike is inflationary or deflationary?

PART II.

4. According to the 1965 Economic Report of the President:
   1. “The general guide for wages is that the percentage increase in total employee compensation per man-hour be equal to the national trend rate of increase in output per man-hour.”
   2. “The general guide for prices calls for stable prices in industries enjoying the same productivity growth as the average for the economy; rising prices in industries with smaller than average productivity gains; and declining prices in industries with greater than average productivity gains.” (p. 108)
      1. Using relevant aspects of production theory, what would this policy imply for:
         1. Income distribution
         2. Labor allocation among industries and skills
      2. According to theories of inflation you find most persuasive, what aspects of the price-wage mechanism would be most likely to frustrate the Council guideposts that are outline above?

Your answers should consider departures from competitive behavior where pertinent.

5. Describe the long term trends in (a) population, (b) output, (c) capital, (d) real wage rates, (e) interest, (f) relative shares, (g) capital-output and other important ratios. What constancies have people claimed to observe? What behavior is explicable by a simple neoclassical model? Which of these regularities seem to require the introduction of technological change or the abandonment of central neoclassical propositions? Mention authors as well as theories.
6. Discuss the role of (a) floors and ceilings and (b) autonomous investment in theories of growth and fluctuations.

________________________

 

February 7, 1966
GENERAL EXAMINATION IN MACROECONOMICS
Two Hours

Answer three questions, including at least one from each part.

PART I:

1. Write a comprehensive essay on the subject of “The Distinction between Final and Intermediate Products in economics”.
   Include in your essay (but don’t limit yourself to) the following points:
   1. The basic philosophy
   2. Governmental receipts and expenditures
   3. Input-output systems
   4. Federal Reserve Index of Industrial Production

2. Discuss the following aspects of the “Price Flexibility and Employment” problem:
   1. The basic statement as presented by Patinkin
   2. The role and definition of money
   3. The role of expectations
   4. Your conclusions
3. Write a comprehensive essay on the subject of “The Economic Effects of a Redistribution of Income from the Upper to the Lower Income Groups”. Indicate the positions on the subject of several economists whose views are relevant to your essay.

PART II:

4. Is an economy which has been growing at full employment (and full utilization of capacity) helped or hindered in the maintenance of full employment (and utilization) by a more rapid rate of growth of the labor force?
5. “I take leave to doubt whether there has ever been a trade cycle, i.e. a self-perpetuating cyclical movement, as opposed to a series of fluctuations due to the propensity of a private enterprise economy to exaggerate its response, either way, to the changes of history as it meets them.” Discuss this remark of Joan Robinson’s.
6. Consider a conventional one-sector neoclassical growth model (i.e. constant returns to scale and smoothly diminishing returns in labor and capital, full employment). There is no depreciation and the labor supply is growing exponentially. The ratio of investment to output is constant. There is “disembodied” purely labor-augmenting technological progress going on exponentially at the rate a/j where j is the elasticity of output with respect to labor input (not necessarily a Cobb-Douglas constant).

Analyze how the steady-state rate of growth depends on the value of the investment-output ratio.

________________________

 

May 13, 1966
GENERAL EXAMINATION IN MACROECONOMICS
Two Hours

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

PART I

1. Beginning at least with Adam Smith, there has been much ado in economic writings about productive and unproductive activities and about their proper treatment in national income and product accounts (and in their subdivisions).
   Write a comprehensive essay on this subject. Include in it, but do not limit yourself to, the following points:
   1. The principles and procedures followed by the U. S. Department of Commerce
   2. Alternative methods which might be followed and the reasons for them
   3. Special problems created by the presence of governmental activities
   4. The Marxist position on this subject
2. Write an essay on the subject of “Economic Effects of an Increase in the Stock of Money.” Indicate the position taken by several important economists familiar to you.
3. Explain the investment criteria which should be used by:
   1. A private American enterprise
   2. U. S. government
   3. A Planning Board of some under-developed country.

Emphasize the differences in criteria to be used and the reasons for the differences.

PART II

A short well-organized answer is best.

4. Formalize the following assumptions into a model:
   1. Current consumption is proportional to last year’s national income;
   2. Current investment is proportional to last year’s profits;
   3. Current profits are an increasing linear function of current national income and the change in national income since last year;
   4. National income is the sum of consumption and investment.

Will the model generate cycles if disturbed, for plausible values of the parameters? (Assume that, other things equal, 40% of a year-to-year increase in national income flows into profits.)

Describe how the response of the model economy would be affected by the imposition of a proportional income tax (with consumption proportional to disposable income).

Same for a proportional profits tax, with investment proportional to after tax profits.

Compare the stabilization effects of the two, if the profits tax is levied so as to raise the same amount of revenue as the income tax at a constant level of national income.

5. Following is the text of a letter from James Tobin.

“Following is the text of a letter from Joan Robinson:

‘Many thanks for sending me the offprint from Econometrica (Money and Growth). Your Keynesian long-period theory is very different from mine and Kaldor’s. I should say that a lower rate of interest will make the rate of profit higher. The rate of profit r = g/s_p, i.e. is equal to the rate of growth divided by the proportion of profit saved. I should say that, within reason, and provided that an appropriate part of investment is in research and training, a higher rate of investment will generate a higher natural rate of growth, so that deepening need not occur.’

Does this make sense?”

Answer Professor Tobin’s question. (The “rate of interest” refers, say, to the rate on government bonds, the only asset apart from real capital. The “rate of profit” can be taken to be the marginal product of capital in a one-sector economy near a steady state.)

Compare the behavior of output per man or per man-hour in the short-run (i.e. in the course of economic fluctuations) and in the long run, for the economy as a whole. Comment on any analytical issues raised by the behavior.

________________________

February, 1968
GENERAL EXAMINATION IN ECONOMIC THEORY
MACROECONOMICS—TWO HOURS
[Note: recycled exam from February, 1964]

Answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

Part I

1. Write a comprehensive essay on the subject of “Comparisons of National Income and Product in Time and Space.” Indicate the biases which arise in such comparisons.
2. “The problem of price flexibility and employment is a silly game based on the inclusion of some debtor-creditor relationships and the exclusion of others.” Comment fully. Indicate what definition of money used in your discussion.
3. Write a comprehensive essay on the subject of “The Interrelationships between Money, Prices and the Rate of Interest.” Include brief reviews of the relevant theories.

Part II

4. “In order to prevent a cost-push inflation, wage rates in each firm or industry should not increase faster than its labor productivity.” Comment fully.
5. “If Hansen is correct, the faster is the rate of growth of population, the lower will be the unemployment level in the U.S.” Discuss fully. Include natural growth of population and immigration. In what respect does the growth of population differ from that of the stock of capital?
6. Write an essay on “Floors and Ceilings in Business Cycle Theory.” Indicate the specific theories and your methods of testing each.

[handwritten note: “special exam… She received good-/fair+ with charity]

________________________

14.452
FINAL EXAMINATION
May 23, 1968

Please answer each question in a separate examination booklet. Indicate on the front page of each booklet whether you are seeking only a grade in 14.452 or a grade in the general examination in economic theory. Those who seek only a grade in 14.452 should answer two questions in part I and two questions in Part II. Those who are taking the general examination in economic theory should answer two questions in Part II and two in Part III.

Part I

1. Construct a difference-equation model embodying the following assumptions:
   1. Consumption is a linear function of disposable income lagged one time-unit;
   2. Tax revenue is proportional to national product;
   3. Investment is the sum of a component proportional to the current change in consumption and a component proportional to national product lagged one tie-unit;
   4. Imports are proportional to national product lagged one time-unit;
   5. Government purchases are constant.

Write down formally the conditions for an oscillatory response of the model to disturbance. When are the oscillations damped? How do variations in the tax rate affect these conditions? Suppose part of government purchases were made negatively proportional to the last observed change in national product?

2. Why is technical progress an important part of the usual model of economic growth? Could increasing returns to scale play the same role? What is the special role of purely labor-augmenting (i.e. Harrod-neutral) technical progress?
3. Imagine a planned economy choosing among steady states in the one-sector model, without technical progress. The planner values both consumption per head and capital per head (as a measure of national strength, say) and his preferences can be expressed by a system of conventionally-shaped indifference curves in consumption per head and capital per head.

Use this indifference map and the requirements for a steady state to show how the optimal steady state is chosen. Prove that the optimal capital per head will exceed the “Golden-Rule” (maximal consumption per head) level. Show what happens to the optimal position if the rate of population growth increases. Discuss briefly the case of a one-time upward shift in the production function.

Part II

1. In the generalized multiplier-accelerator model, the equation means that “investment decisions are always carried out”, so that when

“unintended consumption or saving” occurs. Replace the above equation with and interpret and analyze the resulting model. Compare its behavior with the case analyzed in class.

2. Suppose I = I(Y,K) and S = S(Y) are the schedules of desired investment and saving. In what sense is I–S a measure of excess demand in the aggregate commodity market?

How is it that no specific supply variables (labor force, for example) appear in this measure? Under what circumstances is it natural to suppose that dY/dt responds to (I–S)? (Y = real output, p = commodity price level). Under what circumstances is it natural to suppose that dp/dt responds to (I–S)?

3. Consider a one-sector non-monetary model of growth under the following assumptions:
   1. The production function in intensive form is q = Ak^b;
   2. The wage is equal to the marginal product of labor;
   3. Investment demand is such that the after-tax return on capital is always at a target level r*;
   4. There is a tax on profits at rate t and the government spends all its revenue on consumption;
   5. The savings rates from wages and after-tax profits are both equal to a constant s.

Find the tax rate that will permit a steady state at full employment. When will it be between zero and one? How does it change if s changes? Interpret.

4. Consider a one-sector growth model, with two factors of production (capital and labor), constant returns to scale, and no technical progress. Suppose that the propensity to save out of profits and capital gains is equal to one, and the propensity to save out of wages and transfer payments (taxes = negative transfers) is zero.

Money, which is non-interest-bearing government debt, is the only alternative asset to capital. The desired money-capital ratio is of the form where m is the real per capita stock of money, k is the capital-labor ratio, and  is the expected rate of inflation which is equal to the actual rate in the steady state.

Government purchases are zero and the budget deficit, which is equal to the excess of transfers over taxes, is financed by issuing money.

1. 1. Describe the steady-state characteristics of the model.
   2. Find the rate of inflation that maximizes steady-state consumption per head.
   3. Suppose that is the rate of inflation in (b) that maximizes steady state consumption per head. Would a higher rate of inflation lead to a higher or lower long-run capital-labor ratio?

Part III

1. Write a comprehensive essay on the subject of “The Problem of Weights in National Income and Index-Number Construction”.
   Explain the criteria which are used, should be used (for what purpose?) and why.
2. Discuss the economic effects of an increase in the stock of money. Include an evaluation of the positions of several (not less than two) prominent economists familiar to you. How would you test the correctness of their positions?
3. Discuss the effects of inflation of the level of real investment.

________________________

 

GENERAL EXAMINATION IN ECONOMIC THEORY
Macroeconomics—Two hours
Sept. 1968

Answer THREE questions, at least ONE from each part. Use a separate examination book for each question.

PART I

1. “Existing methods of national product computation exaggerate the rate of growth of real product over time in a given country, and overstate the ratio between the real product of highly developed and of underdeveloped countries.”
   Comment fully.
2. Write a comprehensive essay on the subject of “The Interrelationships between Money, Prices and the Rate of Interest.” Include brief reviews of the relevant theories.
3. Write an essay on the subject of “The Economic Effects of a Redistribution of Income from the Upper to the Lower Income Groups.”
   Include in your essay the evaluation of several current theories on the subject.
   Consider as many economic effects as you can.

PART II.

4. “In order to prevent a cost-push inflation, wage rates in each firm or industry should not increase faster than the growth of its labor productivity.”
   Comment fully.
5. Consider the effects of technological progress on employment of labor. Be as comprehensive as you can.
6. What are the built-in stabilizers and how do they work? Can we rely on them to achieve price stability and full employment?
   Discuss the subject fully.

________________________

 

Spring, 1969
GENERAL EXAMINATION IN MACROECONOMICS
Three Hours

Please answer FOUR QUESTIONS distributed as follows:

Part I—without choice—1 hour
Part II—any two questions—40 minutes each
Part III—any one question—50 minutes

Use a separate examination book for each question.

PART I

The Federal Government wishes to stop the current inflation of the aggregate price level. What are the issues in choosing among various fiscal and monetary policies directed to this end? Try to use macroeconomic models (expressed algebraically, graphically or verbally) to illustrate the problems involved.

PART II

1. Write an essay indicating what you think are the most important ideas about the determination of the rate of investment in economic theory and in economic practice. (Suppose the problem came up in the course of presenting the static Keynesian macroeconomic model of income determination.)
2. In the two-asset neo-classical growth model à la Tobin or Sidrauski we have two basic equations:

1. 1. 
   2. 

Suppose we add the requirement that

1. 3. , that is that the government always vary its deficit to produce a constant rate of deflation (which would, of course, be an inflation if .)

 

1. 1. Show that this model can be expressed by the two equations

1a) 

where 

2a) 

Why are the pairs of k and (p_mm) which make the same regardless of ? HINT: When what is the increase in the per capita real money supply? What determines the increase in the total real money supply?

1. 2. Show the dynamics of this system graphically by sketching the combinations of (p_mm) and k that make and those that satisfy 2a) (the aa schedule). What is the effect of a higher on the stable steady-state stock of capital?
   3. Under what conditions can the government force the economy to the golden-rule capital stock by enforcing an appropriate through fiscal policy without changing s (assume that p_mm must always be positive for any )?

3. Consider a vintage growth model with fixed factor proportions (clay-clay) a constant labor force (n=0), and Hicks neutral technical change at rate γ. Suppose the economy in question invests every year in a given fixed quantity of new machines (not a constant fraction of income), and has always followed this policy. Assume perfect competition, and full employment.
   1. Write down the production function for a given vintage. What rates labor and capital-augmenting technical change are implied?
   2. What is the labor requirement per machine of vintage τ?
   3. Find the economic life time of capital.
   4. Describe the growth paths of output, wages, quasi-rents and the labor share of income.
   5. Suppose the economy suddenly doubles its investment and then holds it constant. What will happen to wages and the life-time of capital as time passes?
4. What growth model or growth model ideas would be helpful in studying the effects of a redistribution of income from businessmen to workers on investment and/or growth? You may develop a model explicitly or simply write an essay reviewing the important concepts and their relevance to the question.

PART III

1. You are asked to compare the per capita national income of some underdeveloped country, such as Brazil, with that of the United States. Assume that the Brazilian currency (a) is convertible into dollars and (b) that it is not convertible.
   Discuss as thoroughly as you can the problems involved in this comparison and the methods used for dealing with them. Evaluate these methods critically and present and justify your own recommendations.
2. Explain what is meant by “The Money Illusion” and what role does its presence and absence play in theories of employment, interest and prices. Be as comprehensive and as critical as you can.

 

General Examination Grades in Macroeconomics
Spring 1969

Spring 1969 90 = perfect
[1]	83	Ex+
[2]	79	Ex
[3]	78
[4]	77
[5]	75	Ex-
[6]	75
[7]	75
[8]	74	Ex-/G+
[9]	74
[10]	73	G+
[11]	72
[12]	72
[13]	71
[14]	71
[15]	71
[16]	70	G+/G
[17]	70
[18]	69	G
[19]	69
[20]	69
[21]	69
[22]	69
[23]	68
[24]	67
[25]	67
[26]	67
[27]	66
[28]	66
[29]	66
[30]	65	G/G-
[31]	65
[32]	64	G-
[33]	64
[34]	62
[35]	61
[36]	57	F+
[37]	56
[38]	53	F
[39]	50	?
[40]	49
[41]	48

________________________

MACRO GENERAL
February 3, 1971

DO THREE QUESTIONS, AT LEAST ONE FROM A AND ONE FROM B. 40 Minutes each

A

1. There has been a long-standing dispute among economists whether money is or is not neutral. Explain what this dispute is about, what the major positions are, and present and justify your own position on the subject.
2. In order to stimulate investment expenditures by business, President Nixon has suggested a more accelerated treatment of depreciation for income tax purposes. For simplicity assume that every depreciable capital asset can be written off for tax purposes in half the usual time. Analyze the proposal and state and justify your conclusions.
3. The Bergson Index may be defined as the ratio of Soviet output (industrial production or GNP or a similar measure) to Soviet inputs (labor and capital) divided by a similar ratio for the U.S., first in Soviet and then in American prices for some given year. On finding that this Index is less than one, Bergson has concluded that the Soviet economy is less efficient than the American.
   1. Which comparison (that is, in Soviet or in American prices) is more likely to be more favorable for the USSR? Why? (This is the less important part).
   2. Evaluate critically Bergson’s conclusions. (This is the more important part).

B

1. Use a simple macroeconomic model that describes the interaction of the real and financial sectors to describe a theory of determination of the price level. Is simultaneous unemployment and inflation consistent with this theory? What parts of the theory would you modify to take account of simultaneous unemployment and inflation?
2. Define the “golden rule” growth path and derive conditions for an economy to be on it. Compare some actual economy’s performance to the golden rule and, if you can, estimate the saving necessary to reach it. Would you favor such a policy?
3. Consumer spending in the U.S. is currently in a slump. What hypotheses can you advance to explain this fact?

 

________________________

 

GENERAL EXAMINATION IN MACROECONOMICS
June 24, 1971
TWO HOURS

Please answer THREE questions, at least ONE from each part. Use a separate examination book for each question. Write your CODE NUMBER on your book but not your name.

PART I

1. In a recent speech, Simon Kuznets suggested the following method for expressing the relative rate of growth of real national income of a country: calculate the relative rate of growth of real income of each person (or family) and then take the unweighted arithmetic mean of these rates. Let us call the resulting rate
   1. Compare the rationale behind Kuznets’ suggestion with that of the conventional computation of the rate of growth.
   2. For what purposes would you use each method? Why?
   3. Suggest other ways for achieving Kuznets’ objective.
   4. How would the magnitude of K compare with that of the conventional rate?

(Note: do not worry about the distinction between national income and gross product.)

2. Write an essay on the subject of “Economic Effects of the Retardation of Population Growth in the U.S.” (You may choose a comprehensive approach or concentrate on some issues you regard particularly important and interesting.
3. Analyze the effects on aggregate demand and supply, both in the short and in the long run, of a prolonged strike in some important industry. Consider several relevant cases.

PART II

4. When the current Republican administration came into office it faced substantial and rising rates of inflation, and inherited from the last Democratic administration a moderately restrictive fiscal policy. Write a memo to the President outlining his macroeconomic policy options with pros and cons for each. (Would you list different options if you were Paul Samuelson rather than Milton Friedman?)
5. Use some complete macroeconomic model to discuss the ways monetary policy influences aggregate demand. Try to judge which mechanisms are likely to be strong and reliable, which weak and uncertain.
6. Capitalia is a two-class society in which land is not a constraint, workers save and capitalists invest. Its population growth rate is 1%. Nothing has ever happened in Capitalia except exponential growth.
   1. What is the rate of return to capital?
   2. Does the production function make any difference to your answer in part a)? Explain.
   3. If the production function is Cobb-Douglas with capital exponent .2, find the capital per head, output per head, and consumption per head.
   4. In an unexpected development, population growth doubles. What begins to happen to the rate of return, per capita saving, and the saving as a fraction of output?
   5. The government decides to maintain earlier levels of per capita saving “to avoid the impoverishment of our nation” by taxing workers. Comment on this policy. What will per capita consumption be under this policy?

________________________

Source: Duke University. Rubenstein Library. Evsey Domar Papers, Box 16, Folder “Ph.D. Economic Examinations. Macroeconomics.”

Image Source: “From the Flying Car to the Giant R2-D2: The Greates MIT Hacks of All-Time“, by Robert McMillan. Wired, March 20, 2013.

“Boston’s Harvard Bridge is 364.4 Smoots long. And the fact that anybody would remember this in 2013 was probably the furthest thing from MIT freshman Oliver Smoot’s mind on the October 1958 night that he lay himself down, time and again, along the bridge, allowing his fraternity brothers to measure its length (each Smoot is about 5 feet, 7 inches). It was a fraternity prank, but the next year the bridge’s Smoot markers were repainted. Thus, an MIT landmark — and a unique unit of measurement — was born.

Smoot himself went on to become a board member of the American National Standards Institute — a standards man through and through.”