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Exam Questions Fields Money and Banking UCLA

UCLA. PhD Money Qualifying Examinations. Klein, Thompson, Clower, Darby. 1973

While material for the Harvard economics department has and will dominate the flow of content at Economics in the Rear-view Mirror, I will try to post items from other colleges and economics, if for no other reason than to get a change of scenery. So in this post we head out to UCLA to see what Ph.D. candidates who selected Money as a subject for a comprehensive examination were asked. The exam is transcribed from a personal copy of Robert Clower found in this papers. So from UCLA to Duke to you via Berlin.

Note the examination committee for May 1973 has been identified, one might presume that most if not all members also were involved in the October 1973 examination transcribed below.

Previously posted:

May 1971 Field Exam 

______________________________

Meet the members of the Ph.D. Comprehensive Field Exam for Money
(UCLA, Spring, 1973)

Chairman, Benjamin Klein (b. 1943. Ph.D. University of Chicago)

Earl Thompson (b. 1938; d. 2010. Ph.D. Harvard University, 1961)

Michael Darby (b. 1945. Ph.D. University of Chicago, 1970)

Robert W. Clower (b. 1926; d. 2011.  D.Litt. Oxford University 1978)

For much, much more:  The Essential UCLA School of Economics by David R. Henderson and Steven Globerman.

______________________________

Memo on Comprehensive Field Exams
in the UCLA Economics Department

April 5, 1973

TO: Economics Department Faculty
FROM: The Graduate Committee and the Acting Chairman
SUBJECT: Comprehensive Field Examinations

Some faculty members have indicated to members of the Graduate Committee uncertainty about their roles and responsibilities in the examination process. The following notes may serve to lessen those uncertainties.

Each of the eleven areas designated as “fields” by the Department has a committee charged with the responsibility for composing the examination and measuring the accomplishments of our students. While the duties involved with conducting these examinations are onerous, the exams have played a central part in the graduate curriculum and are, therefore, worthy of considerable effort.

Typically, the person named chairman of the field solicits questions for the examination from all the other members of the committee. In some cases, his solicitation may go beyond the committee to other department members as well. Usually, he then composes the examination and, before submitting it to the graduate secretary to be typed, circulates a draft copy among the committee members to seek their consensus about balance and format. In particular, it is not intended that the chairman have unilateral authority with respect to the exam’s content.

After the examination has been administered to the students, the results are evaluated. All committees, to our knowledge, have at least two members read every answer. In fields in which the number of students is small, all members read all the answers.

Finally, in order to grade the examination, most committees schedule a meeting at which some consensus about grades is forged. At such meetings, a member who has strong feelings about the qualities (or lack thereof) of any given question or examination may convince the other members. For most committees this procedure has proven more useful than that of simply handing the chairman a score sheet before any dialogue about the results has occurred.

Clearly, modes of behavior with respect to the conduct of the examinations will vary among the field committees. However, to the extent that committees can standardize their actions along the lines indicated above, student and faculty uncertainty about the examinations will diminish, with an accordingly greater emphasis on more substantive matters.

______________________________

Comprehensive Field Examinations for the M.A. and Ph.D. degrees — May 1973

Field Committees:

Economic Theory. Hirshleifer (chairman), Thompson, Clower, Demetz, Leijonhufvud

Urban and Regional Economics. Hirsch (chairman), Ellickson, Chen

Public Finance. Somers (chairman), Chen, Lindsay, Vandermeulen

Government and Industry (industrial organization). Demetz (chairman), Peltzman, Hilton, Klein

Mathematical Economics. Thompson (chairman), Britto, Clower

Econometrics. Dhrymes (chairman), Ellickson, McCall

Money. Klein (chairman), Thompson, Clower, Darby

International Economics. Baird (chairman), Chu, Rugg

Economic Development. Herrick (chairman), Britto, Wolf

Labor Economics. Herrick (chairman), Lindsay, Hilton

Economic Institutions (economic history). Murphy (chairman), Shetler, Leijonhufvud

______________________________

Ph.D. Money Qualifying Examination
October 15, 1973

Four Hours

Answer six of the following seven questions. Be as specific and rigorous as possible.

There is plenty of writing time to answer all of the questions satisfactorily so try to spend a sufficient amount of time thinking before beginning to write. Irrelevant material presented, however correct, will be penalized.

1. In his 1942 article on “Say’s Law: A Restatement and Criticism,” O. Lange defines “Walras’ Law” by the identity

\sum_{i=1}^{i=N} p_{i}X_{i}\equiv 0,

where Xi denotes the sum of all individual excess demands for the ith conmodity (“collective excess demand”), and Pi denotes the price (expressed in units of the Nth commodity) of the ith commodity. In the same article, Lange defines “Say’s Law” by the identity

\sum_{i=1}^{i=N-1} p_{i}X_{i}\equiv 0,

where pi and Xi are defined precisely as before. Calling the Nth commodity “money,” Lange then asserts that if collective excess demands in an economic system A simultaneously satisfy both Walras’ Law and Say’s Law, then:

    1. Money prices are indeterminate;
    2. Individuals will never desire to change their money balances;
    3. Money is merely a worthless medium of exchange and standard of value in economy A.
    4. The economic system A is “equivalent to a barter economy.”

Critically evaluate each of the assertions a) through d).

2. a) The rapid rise in short-term interest rates during the first half of 1973 produced what is commonly called commercial bank “disintermediation” and thereby differential movements in the rates of growth of M1 compared to M2.

Clearly describe this process and how it affects the two definitions

of the money supply. In such circumstances, is the rate of growth of M1 or of M2 a better indicator of monetary policy? Can you suggest a superior monetary aggregate to use as an indicator?

b) During the past year the rate of growth of money has deviated at times substantially from the rate of growth of the base or high-powered money (i.e., there has been a change in the money multiplier) due to large changes by the Treasury in the amount of demand deposits they hold at commercial banks. This led one observer to ask whether it was the Treasury or the Federal Reserve who was making monetary policy.

Clearly describe how changes in government demand deposits affect the money supply. How can the Federal Reserve offset such changes? If the Treasury decided to become a “monetary authority” and tried to control the money supply in this way, how would they fare in competition with the Fed if the two authorities adopted different money supply goals?

3. An Englishman holidaying on a small Mediterranean island paid all his expenses with checks on his English bank. The inhabitants were so impressed by his gentlemanly bearing that instead of cashing his checks, they used them thereafter as money. Who paid for the Englishman’s holiday?

Answer this question in terms of (a) fixed exchange rates and (b) floating exchange rates. Explain how different macroeconomic views of the world affect the answers.

4. There has been much discussion about the exogeneity or endogeneity of the money supply. Explain the different meanings of these terms for policy analysis and for statistical estimation and how these differences have been a source of confusion.

5. Discuss the following proposition: The rate of unemployment is affected primarily by deviations of the actual rate of change of money or government spending from their expected rates of change, and not by the rate of change or level of money or government spending.

Does this proposition have any implications about the relative and absolute possibilities of the persistent use of fiscal or monetary policy to achieve a low rate of unemployment?

Cite any empirical evidence with which you are familiar for or against the proposition (e.g., consider the Andersen & Jordan weights on the effects of changes in government spending on changes in nominal income).

6. The Federal Reserve recently adopted a rule change where required reserves instead of being calculated on the basis of current deposits is now based on commercial bank deposits two weeks earlier (which are obviously given at the time of the calculation).

This rule change has produced a situation where the Fed can no longer affect, in any given week, the total reserves of the banking system and where the major short-run effective policy tool of the Fed is how much it “forces” commercial banks to borrow from them each week — a very crude instrument by which to control the money supply.

Do you agree or disagree? Explain carefully.

Source: Economists’ Papers Archive, David M. Rubenstein Rare Book & Manuscript Library, Duke University. Robert W. Clower Papers, Box 4, Folder “Monetary Economics, PhD exams, Reading list, exams UCLA 1971-1988”.

Image Sources: Benjamin Klein, Earl Thompson, Robert Clower, Michael Darby.

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Exam Questions Macroeconomics UCLA

UCLA. Macroeconomics PhD qualifying examination. Spring 1982

There are basically two kinds of artifacts that make it into the Economics in the Rear-view Mirror collection. There are items that come from (nearly) complete and neatly arranged sub-collections found in university archives and those somewhat random items plucked from the idiosyncratic personal collections of individual scholars. Today’s Ph.D. macroeconomics exam from UCLA is found in a folder of teaching materials for macroeconomics in Robert W. Clower’s papers at Duke University’s Economists’ Papers Archive. 

Other things equal, a balanced panel of such exams across departments and time is what we would ideally hope to accumulate. But the enemy of the good is the perfect in this as in all historical research. So without apology, indeed with a bit of pride, I enter this artifact into our digital record.

Fun Facts: The quote that heads question 9 comes from Charles Dickens’ David Copperfield, for question 10 from Harriet Beecher Stowe’s Uncle Tom’s Cabin.

____________________________

Ph.D. Qualifying Examination
UCLA Department of Economics

Spring 1982

ECONOMIC THEORY
MACRO PART

TIME: 3 hours — plus an additional 15 minutes for students whose native language is not English.

INSTRUCTIONS: Answer Part I in Bluebook #1 ONLY.

Answer Part II in Bluebook #2 and subsequent books.

DO NOT MIX ANSWERS TO PART I AND PART II IN THE SAME BLUEBOOK.

NOTE WELL: It is extremely important to answer only the questions asked. Extraneous material (whether correct or incorrect) will reduce the score of an otherwise correct answer and no positive credit will be given to correct answers to questions not asked. However, a wrong answer to the question asked will receive a higher score than no answer.

PART I — SHORT ESSAYS
(weight = 1/3)

All questions in this part of the exam are true, false, or uncertain questions. FIRST indicate whether the statement is T, F, or U, and then explain or prove your answer briefly.

Answer only six (6) of the eight (8) questions in this part.

  1. What we should reject is the naive reasoning that there is a demand schedule for investment which could be derived from a classical scheme of producers’ behavior in maximizing profit.
  2. An easy money policy is good for the housing industry in the short run but bad in the long run.
  3. In testing the Quantity Theory of hyperinflations, one must realize that the usual money stock data are apt seriously to underestimate the theoretically relevant money stock. Cigarettes and all sorts of things that become money in hyperinflations are not included.
  4. Although the 1933-1934 increase in the dollar price of gold increased U.S. base money growth, it mainly served at the time as a price-support program for gold.
  5. Relative prices are explained by the theory of value, and, once relative prices are known, money prices are determined by the theory of money.
  6. If the growth rate of nominal money follows a random walk with constant variance, there is no solution to the observational equivalence problem.
  7. The first simple story about inflation is that its underlying cause is deficit spending by the federal government. In that case, the way to fix things up is simply to balance the federal budget.
  8. If expectations are formed rationally and anticipated money does not affect real output, monetary policy cannot stabilize real output.
PART II — DISCUSSION QUESTIONS
(weight = 2/3)

Answer only four (4) of the six (6) questions in this part.

  1. ANNUAL INCOME TWENTY POUNDS, ANNUAL EXPENDITURE TWENTY POUNDS, OUGHT, AND SIX, RESULT MISERY.
    The federal deficit in 1943 and 1944 was nearly $50 Billion, or some 12% of GNP. Long-term bonds yielded no more than 3% per annum in the same years. Do these facts raise any questions in your mind about the validity of present arguments to the effect that projected federal deficits amounting to some 4% of GNP explain present long-term bond yields in excess of 12% per annum? Defend your answer.
  2. NEVER HAD NO FATHER, NOR MOTHER, NOR NOTHIN’. I WAS RAISED BY A SPECULATOR — TOPSY
    1. Explain the analysis behind the presumption, shared by almost all economists, that speculation will be “stabilizing” and not “destabilizing” in any given market that is exposed to regularly recurring “disturbances.”
    2. Explain the role of “speculative behavior” in producing the “instability” problems of Keynesian macrotheory.
    3. “In any system where speculation is based on rational expectations the Keynesian type of income fluctuations should not arise.” Discuss.
  3. IT’S FINE IN THEORY, BUT WILL IT WORK IN PRACTICE?
    From October 1979 to March 1980, money growth slowed sharply in the United States. During the same period of time, inflation accelerated, the unemployment rate rose somewhat, nominal interest rates rose sharply: and the dollar generally appreciated against other major currencies.
    1. Can economic theory account for each of these occurrences? Consider each event separately.
    2. Under what circumstances, if any, are all these events simultaneously consistent with economic theory? Explain carefully.
  1. GOLDEN AND/OR BRASS RULES

In recent years there has been considerable discussion of instituting a monetary “rule” which would make monetary policy non-discretionary. One question, of course, is what form such a monetary “rule” should take. In light of this question, compare and contrast the probable impact on inflation and unemployment in both the short run and the long run from the following two possible monetary rules:

Policy 1: A k-percent rule: legally requiring the growth rate of the money supply to be k-percent.

Policy 2: A modified k-percent rule: legally requiring the growth rate of the money supply to be k-percent only when unemployment is at some target rate \bar{u}. Formally, letting \dot{m} be the growth rate of the money supply, the modified k-percent rule would require that:

\dot{m} =k+\beta \left( u^{a}-\bar{u} \right)

where β is a fixed, positive, non-discretionary constant and u^{a} is the actual unemployment rate.

  1. AN ESSAY ON THE ESSENTIAL ESSENCE
    “IS-LM analysis fails to capture the essence of Keynesian economics because it completely ignores the effect of current levels of output and employment upon current production and consumption plans.”

    1. Is this a fair comment on IS-LM analysis? Explain.
    2. Is its characterization of “the essence of Keynesian economics” valid? Explain why or why not.
  2. SOMETIMES YOU CAN’T LOSE FOR WINNING.
    “Inflation is either unanticipated or anticipated. If unanticipated, it will increase output and employment. If anticipated, it has no effect on output and employment. So either it helps you or it does not hurt you.”

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. Robert W. Clower papers. Box 4, Folder “Econ 202. Income, Employment, Monetary Theory”.

Image Source: Macro-Man from the DC comics fandom website’s wiki.

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Exam Questions Money and Banking UCLA

UCLA. Monetary Economics, PhD qualifying exam. 1971

Having just spent nearly a month travelling along the East Coast of the U.S., it is great to get back to posting new content. On this trip I was able to get in three fine days of work in the Economists’ Papers Archive at Duke. While there I found much useful material for Economics in the Rear-view Mirror in the Robert W. Clower papers. A copy of his UCLA obituary can still be found at the Wayback Machine internet archive.

In 1971 Clower joined the UCLA economics department so it is unclear whether he actually contributed to the Ph.D. preliminary examination in monetary economics transcribed below 

_______________________

Ph.D. Qualifying Examination
Four Hours

May, 1971

Monetary Economics

Answer five of the following seven questions.

  1. [On the concept of money]
    1. “Contemporary monetary theory analytically treats money as merely another commodity.” State if (and why) you agree or disagree with this proposition.
    2. Money is sometimes distinguished from commodities by the following assertions. Briefly discuss the meaning of each assertion and whether you agree or disagree with it.
      1. Money has no “intrinsic value”; it cannot be enjoyed directly, but must first be converted into something else.
      2. Money is used but is not used up.
      3. Money buys goods and goods do not buy money.
      4. Money has superior liquidity than other goods.
      5. The value of money is fixed in terms of the unit of account.
      6. Money is traded directly for every commodity and vice versa, while commodities are not traded for one another.
    3. Discuss the limitations placed on research in monetary theory if money is considered merely as a commodity.
  2. Many writers have asserted in the press that the recent international currency “crisis” points up the unique role of the dollar in present international monetary arrangements. Discuss the international role of the dollar with reference to each of the following statements taken discussions of the crisis.
    1. Over the past couple of years the U.S. has been exporting an unwanted inflation to the countries of Europe, especially Germany.
    2. The immediate cause of the crisis was the presence of interest rates in the U.S. which were too low relative to those in Europe and therefore initiated massive capital flows from the U.S. to Europe.
    3. The massive accumulation by foreigners of dollars underlined the fact that the dollar has become de facto inconvertible into gold and was now little more than an unbacked IOU.
    4. The U.S. should be unconcerned with its balance of payments deficit. Under present arrangements any adjustments to international disequilibrium must be made by foreigners; and all the options available to foreign surplus countries, assuming moderately rational behavior on their part, should be acceptable to the U.S.
    5. The recent crisis points up the inherent instability of current international monetary arrangements. The increase in foreign short-term claims upon U.S. gold reserves and the revaluation of currencies in terms of the dollar will undermine the employment of the dollar as the banking currency of the world and speed the development of a unified European currency.
    6. The recent crisis has strengthened the world monetary system by bringing closer the day when the dollar-gold fixed exchange rate standard is replaced by a system of floating exchange rates.
  3. Discuss the following three propositions. (State whether they are true or false and explain why) .
    1. Legal reserve requirements are unnecessary to place a finite limit on the quantity of commercial bank deposits if the deposits are convertible into the government supplied dominant money.
    2. Elimination of the convertibility requirement would lead to an unlimited expansion of deposits.
    3. There is no limit on the extent to which the government can expand the supply of dominant money.
  4. An economist recently wrote a letter to the Wall Street Journal complaining that much discussion of how to control inflation has been based on a neo-quantity theory which emphasizes “the quantity of money” while ignoring “the quality of credit”. The Federal Reserve was established, he noted, to regulate commercial bank assets while current discussion (and policy) concentrates on the liability side of the commercial bank balance sheet and entirely ignores the asset side. He maintained that if, for example, commercial banks were forced to limit their lending activity to short-term, self-liquidating business loans, inflation would quickly be controlled. Evaluate this argument.
  5. [Monetary vs. fiscal policy.]
    1. It is sometimes argued that fiscal policy should be used to maintain domestic full employment while monetary policy should be used to maintain balance of payments equilibrium. Present this argument and clearly state the assumptions upon which it is based.
    2. Summarize and evaluate the existing empirical evidence on the effectiveness of monetary versus fiscal policy as a stabilization device
  6. [Inflation]
    1. Inflation is often considered to be a tax. In what sense is this correct? What is the magnitude of the tax? Who pays and who collects the tax?
    2. What are the effects of inflation on real resource allocation.
      [In (a) and (b) make sure you distinguish between anticipated and unanticipated inflation.]
  7. [The Gibson Paradox]
    1. What is the Gibson Paradox?
    2. Why is it considered to be a paradox?
    3. What theoretical explanations have been advanced to explain the phenomenon?
    4. What is the existing state of the evidence concerning these explanations?

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library, Economists’ Papers Archive. Robert W.Clower Papers, Box 4, Folder: “Monetary Economics PhD exams, Reading List, Exams. UCLA, 1971-1988”.

Image Source: Screen shot from Abba—Money, Money, Money karaoke video.