Johns Hopkins. Undergraduate exams for national income and employment. Domar, 1955-1956

The undergraduate course Political Economy 3 (National Income and Employment) at Johns Hopkins was followed by Political Economy 4 (Economic Fluctuations and Fiscal Policy). Both terms of introductory macroeconomics were taught by Evsey Domar in 1955-56.  Class outline, readings, and exams for Political Economy 4 were posted earlier.

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Course Announcement
1955-56

National Income and Employment. 3.  Professor Domar. Three hours weekly, first term.

National income and its composition. The determination of income, employment, and the general price level. A brief treatment of the problem of economic stability and development.

Prerequisite: Political Economy 1.

Source: Johns Hopkins University. Undergraduate Programs, Announcements of Courses 1955-1956 in Circular 1955-1956 Vol. 74, New Series 1955, Number 8, p. 102 [In annual volume of Circulars, p. 746].

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E. D. Domar
November 2, 1955

THE JOHNS HOPKINS UNIVERSITY

NATIONAL INCOME AND EMPLOYMENT
(Political Economy 3)

[FIRST] HOUR EXAMINATION
Fall Term, 1955-56

Answer all questions in any order you like. Indicate carefully each step in your reasoning and computations.

1. [40%] On the basis of the data given below. compute the following estimates (not necessarily in this order):
   1. 1. Gross national product from the expenditure point of view.
      2. Gross national product from the income point of view.
      3. National income.
      4. Disposable personal income.
      5. Saving and Investment account.

Set up only such auxiliary accounts as you need to prepare these estimates. Be careful to make your results mutually consistent.

Capital consumption allowances (depreciation)	14
Compensation of employees (wages & salaries)	90
Corporate income taxes	10
Dividends (received by consumers)	8
Employer (business) contribution to social insurance	3
Government purchases of goods and services	38
Government transfer payments	6
Gross private domestic investment (capital formation)	25
Indirect business taxes	14
Income of unincorporated enterprises	20
Interest received by consumers from business	3
Interest received by consumers from government (on the public debt)	3
Net foreign investment (our investment in foreign countries)	-1
Personal consumption expenditures	110
Personal contribution to social insurance (employee payroll taxes)	2
Personal income taxes	16
Rental income of persons	5
Undistributed corporate profits	5

1. [20%] Explain why government receipts and expenditures create special problems for national income (or gross product) estimators. How are these problems resolved?
2. [40%] For each of the following items explain the following:
   1. Its nature;
   2. Its treatment in the computation of GROSS NATIONAL PRODUCT and of DISPOSABLE PERSONAL (CONSUMER) INCOME by the U. S. Department of Commerce;
   3. Grounds for such treatment;
   4. Your evaluation of the grounds and your own recommendations. Justify each position you take.
      1. Capital gains and losses
      2. Imputed rent
      3. Interest on the Federal debt
      4. Payments made to veterans for education
      5. Food produced in the farm and consumed by the farmer and his family.
      6. Undistributed profits
      7. Intermediate products
      8. Profits made by a monopolist
      9. Profits made by an American corporation abroad but not remitted to the U. S.
      10. Employer contribution to social insurance.

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E. D. Domar
December 7, 1955

THE JOHNS HOPKINS UNIVERSITY

NATIONAL INCOME AND EMPLOYMENT
(Political Economy 3)

[SECOND] HOUR EXAMINATION
Fall Term, 1955-56

Answer all questions in any order you like. Indicate each step in your reasoning. No credit will be given for vague generalities.

1. [20%] Discuss the performance of the American economy during the period 1866-1918. Try to explain the causes of the most important developments.
2. [5%] The numbers below refer to the United States in 1954. Indicate in your blue book the one number which in each case comes closest to being true. If you fail to indicate a number you will receive zero; if you indicate an incorrect one you will receive a negative score.

(a)	Gross National Product (in current prices)	360	375	390	(billions)
(b)	Gross Private Domestic Investment	30	45	60	(billions)
(c)	Disposable personal income	250	275	300	(billions)
(d)	Personal savings as a fraction of disposable personal income	3	5	7	(per cent)
(e)	Compensation of employees as a fraction of National Income	50	70	90	(per cent)

1. [20%] “Gross National Product is an excellent index of the welfare of the people.” Comment.
2. [25%] State and explain the main factors affecting Personal Consumption Expenditures out of a given Gross National Product.
   Explain which of them and in what manner can be affected by government policies.
3. [20%] Whether gross national product is approached from the production, income or expenditure point of view, the totals are supposed to be identical (subject to a small statistical error). Yet in current economic discussions one often hears expressions such as “shortage of purchasing power,” “excess of purchasing power,” “insufficient investment,” “excessive government expenditures,” and so on.
   How do you reconcile this contradiction?
4. [10%] “What is good for an individual or a firm is good for the country.” Comment.

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E. D. Domar
January 27, 1956

THE JOHNS HOPKINS UNIVERSITY

NATIONAL INCOME AND EMPLOYMENT
(Political Economy 3)

FINAL EXAMINATION — THREE HOURS
Fall Term
1955-56

Answer all questions in any order you like. Indicate carefully each step in your reasoning.

1. [24%] Explain CAREFULLY how each of the transactions listed below affects (if it does)
   1. GROSS NATIONAL PRODUCT,
      and one or more of its subdivisions:
   2. PERSONAL CONSUMPTION EXPENDITURES,
   3. GROSS PRIVATE DOMESTIC INVESTMENT,
   4. NET FOREIGN INVESTMENT
   5. GOVERNMENT PURCHASES OF GOODS AND SERVICES.
      1. Interest on the Federal debt received by individuals from the government.
      2. An allowance received by a college student from his parents.
      3. A fee to a music teacher paid by the student mentioned in (b).
      4. Purchases of groceries made by the wife of the music teacher mentioned in (c).
      5. Land purchased by the City of Baltimore to build a music center.
      6. Exports of used buses to South America.
      7. Personal income tax paid by the individual to the Federal government.
      8. Capital gains made by a college professor on the stock market.
      9. Tourist expenditures made abroad by the professor mentioned in (h) out of his capital gains.
      10. A loan which a Baltimore business man obtained from the local bank.
      11. A Federal bond which a student cashed at the local bank.
      12. A house which Mr. X. has just constructed for himself and his family.

In each case, follow the criteria used by the U. S. Department of Commerce, but feel perfectly free and welcome to state and justify other criteria that you would prefer to use.

DO NOT GO BEYOND THE EVENTS DESCRIBED IN EACH TRANSACTION. DO NOT TAKE INTO ACCOUNT ANY SECONDARY EFFECTS.

1. [20%] Discuss the performance of the American economy during the period 1919-39. Present an analysis of the most important developments. Be specific.
2. [10%] (a) Explain thoroughly and (b) evaluate critically the concept of the MULTIPLIER by indicating how it is supposed to work, on what assumptions it is based, and its usefulness (if any) in the explanation of economic fluctuations and for the formulation of economic policy.
3. [15%] In 1946, soon after the end of World War II, Congress was considering a large loan to Britain. A question naturally arose as to why the loan should be given to Britain rather than to some other country. A front page article in the New York Times defended the loan to Britain on the ground that the British would undoubtedly spend the proceeds of the loan in the United States, while some other country might not be so accommodating.
   Comment fully on the argument advanced by the New York Times.
4. [16%] Define briefly the following terms and explain critically their use in economic analysis. Illustrate your explanation with examples
   1. Marginal efficiency of capital (or of investment).
   2. Index numbers.
   3. Acceleration principle.
   4. Saving and Investment account.
   5. Intermediate products.
   6. Kondratieff Cycle.
   7. Secular stagnation.
   8. Imputed rent.
5. [15%] Some time ago John M. Keynes, the famous English economist, suggested that the Government should:

“Fill old bottles with (newly printed) banknotes, bury them at suitable depth in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise to dig the notes up again…”

Retaining your sense of humor and remembering that Keynes was endowed with one too, discuss thoroughly the following questions regarding this statement:

1. 1. What economic conditions did Keynes try to remedy by this strange method?
   2. Suppose his suggestion were accepted. Trace as completely as you can its effects on national income (or gross national product), the level of employment and the price level.
   3. Compare the effects of Keynes’ suggestion with those resulting from a discovery and mining of gold deposits (a) in the U. S. (b) in a small country like Holland.

Source: Duke University. Economists’ Papers Archives, David M. Rubenstein Rare Book & Manuscript Library. Evsey D. Domar Papers, Box 16, Folder “Misc. Examinations”.

Image Source: 1956 Johns Hopkins University yearbook Hullabaloo (p. 15).