UCLA. PhD Qualifying Exam, Money. May 1980

This post adds a fourth Ph.D. qualifying exam for the field of monetary economics at UCLA found in the papers of Robert W. Clower at the Economists’ Papers Archive at Duke University. 

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UCLA Qualifying Exams, Money
Previously posted

May 1971
May 1973
May 1974

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Ph.D. Qualifying Examination
Four Hours

MONEY

Spring Quarter 1980
May 19, 1980

INSTRUCTIONS: Answer all of the following eight questions. Be as specific and concise as possible. There is plenty of writing time to answer all of the questions satisfactorily, so try to spend some time thinking about each question before beginning to write an answer to it. Irrelevant material presented, however correct it may be, will be penalized.

1. —
   1. Outline a proof of Patinkin’s proposition that real balances are indeterminate under a classical dichotomy between real and monetary sectors.
   2. Why is the proof inappropriate in a classical money economy, one with competitive banking and convertibility of paper money into a real commodity?
2. —
   1. What special problem(s) does a limited horizon create for an inconvertible paper money system in which the money supplier is not committed to retire the issue?
   2. If we assume an unlimited horizon (a positive probability that the economy will last forever) do some problems still remain? If so, could governmental suppliers of money avoid such problems? Could a private money supplier?
3. —
   1. What is the statically optimal rate of inflation in a competitive economy with a noninterest-bearing fiat money?
   2. Would you recommend adoption of this rate of inflation as a long-run policy guideline for the U.S. economy? Explain.
4. In the standard Walrasian model of General Equilibrium an efficient allocation of resources is achieved without the use of any device called “money.” Yet the introduction and use of money is usually presumed to generate economic gains. How would you resolve this apparent conflict? Be specific in defining what you think “money” is and in identifying possible sources of economic gains.
5. On the basis of arguments by Mickey Mouse and other leading economists, Congress in 1980 terminated all open-market operations by the Federal Reserve System and declared fine tuning through the use of monetary policy to be the moral equivalent of aggravated assault. Discuss the probable implications of this action for
   1. The rate of inflation
   2. Rates of interest
   3. Unemployment
   4. Government expenditure during the decade of the 1980’s.
6. A few years ago an economist wrote a letter to the Wall Street Journal complaining that much discussion of how to control inflation was based on a neo-quantity theory that emphasized “the quantity of money” but ignored “the quality of credit.” The Federal Reserve System was established, he noted, to regulate commercial bank assets, but current discussion (and policy) concentrated on the liability side of the commercial bank balance sheet and entirely ignored the asset side. The economist maintained that if, for example, commercial banks were forced to limit their lending activity to short-term, self-liquidating business loans, as initially contemplated in the Federal Reserve Act of 1913, inflation would quickly be controlled. Evaluate this argument.
7. When bank credit cards were initially spreading through the U.S., many people argued that their use would contribute to inflation because retailers would pass on — through higher prices — the charges that they had to pay to banks for credit sales. Some people argued, however, that prices would fall because the use of credit cards would reduce overall transactions costs. Yet others argued that prices might rise or fall, depending upon the precise effects of the use of such cards upon sales volumes and upon the velocity of money. Critically assess each of these arguments.
8. It is customary for economic theorists to distinguish in their work between “barter” and “monetary” economies, and also between “value theory” and “monetary theory.”
   1. On what basis are these distinctions made (give specific references to the literature if you can)?
   2. Do you believe the distinctions are useful? If so, explain why; if not, explain why not.

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