Eco 302
Introduction to Macroeconomics

Fall 1995
Prof. Harry Cleaver


Answer ALL the multiple choice questions by marking the correct answer on these pages. Hand in the page! Answer FOUR essay questions, with no more than one question from each section. Write your answers in a blue book and clearly mark, on the cover, which questions you have answered, e.g., II.1, III.2.

Part I: What is Economics?

Section A: Multiple Choice Questions

1. Neoclassical economics concerns itself with the determination of various prices. In the branch of Microeconomics, economists are concerned with _________, while in Macroeconomics they consider _________
a) price rises; price falls
b) real prices; nominal prices
c) individual product
prices; the aggregate price level d) costs to consumers; costs to producer

2. Economists define opportunity cost as
a) the immediately available money price of goods and services
b) the best buy you can find
c) the time you must spend when shopping
d) that which you give up when you make a choice

Section B: Essay Questions

I.1. a) What are the relative advantages and disadvantages of classical and neoclassical conceptions of economics? b) Given a choice which would you take as your point of departure for building your own ideas about the economy? Why?

I.2. Assuming economics is what economists do, how would you compare and contrast the economics of classical theories of economic adjustment and the economics of John Maynard Keynes's response to the Great Depression. (Note: I am not asking you to explain their theories, but rather, I'm asking you to talk about what we might say about the general character of "economics" as implied by their theories.)

Part II: Variations in Capitalist Economies

Section A: Multiple Choice Questions

1. According to our class discussions, the economies of the U.S.A. and the U.S.S.R.
a) were complete opposites
b) each used both markets and planning
c) can not be compared to each other because of their different forms of economic organization
d) were an interesting contrast because one was strcitly a market economy and the other strictly a planned economy

2. In discussing the "economic problem," Case & Fair say that, given scarce resources, large complex societies attempt to answer three basic questions. Which of the following is NOT one of the three?
a) How much will be produced?
b) What will be produced?
c) How will it be produced?
d) Who will get it?

Section B: Essay Questions

II.1. Explain the problems in setting up a bipolar dualism between the U.S. and Soviet economies in terms of markets and planning.

II.2. Assume that Cleaver's definition of capitalism --a social system organized through the subordination of most of life to work-- applied in the socialist countries. What kinds of problems would you expect to find in the current "transition" in Russia and Eastern Europe?

Part III: The Market

Section A: Multiple Choice Questions

1. All of the following are determinants of a good's Demand EXCEPT
a) income and wealth
b) prices of other goods and services
c) tastes and preferences
d) need

2. The Struggling Student Beer Company begins selling beer in Austin at the same time that the Daily Texan prints the results of a series of scientific studies which indicate that drinking beer can improve students' health and help them study. What is likely to happen in the beer market in Austin?
a) The demand curve and the supply curve will both shift to the right, and the equilibrium quantity of beer will increase.
b) The demand curve will shift to the right, the supply curve to the left, resulting in an increase inthe equilibrium price and no change in quantity
c) Demand increases, supply increases, and there is no change in equilibrium price or quantity
d) Demand increases and supply decreases, resulting in a higher equilibrium price and quantity

Section B: Essay Questions

III.1. By the end of the 1960s it was apparent that the traditional American trade surplus was steadily declining. In the Spring of 1971 U.S. imports exceeded exports for the first time in decades. In 1972 the U.S. government intervened in international grain markets in order to raise the value of U.S. exports. It did so 1) by allowing a secret deal between the big grain exporting firms and the Soviet Union for enormous quantities of U.S. grain and 2) by using the power of the Department of Agriculture to restrict grain production in the U.S. a) Using supply and demand analysis (words and graphs) show how such actions raised the value of U.S. exports. b) Would the elasticity of the demand for American grain have any impact on the the efficacy of these interventions?

III.2. Behind the demand curve in any market lie a whole set of assumptions necessary to its mathematical derivation and to the theory of its meaning. Spell out those assumptions and the roles they play in the determination of market demand curves. Then explain as much as you can about how changes in those assumptions would change the curves.

Part IV: Economic and Social Crisis

Section A: Multiple Choice Questions

1. The field of economics that is now called Macroeconomics grew out of the era of the Great Depression, which saw the economy experience a prolonged downturn and persistent high unemployment. Classical economics could not explain these problems because its models assumed all of the following EXCEPT
a) prices are flexible
b) recessions were self correcting
c) wages would adjust in the labor market, thereby eliminating unemployment
d) the government should intervene in the economy

2. During the downturn portion of a business cycle, the economy is characterized by
a) rising unemployment and rising investment
b) falling unemployment and falling output
c) rising profits and falling wages
d) falling output and rising unemployment

Section B: Essay Questions

IV.1. Contrast Case & Fair's treatment of the business cycle with Cleaver's arguments about both traditional and Keynesian cycles as management of antagonism.

IV.2. Discuss the argument that the "economic" relationships that determine fluctuations in variables such as investment, unemployment, wages and profits are rooted in, and dependent on, a broader set of social institutions and relationships.

Part V: Growth and Accumulation

Section A: Multiple Choice Questions

1. According to our discussions in class, the international system established at the Bretton Woods conference in 1944 was predicated on the assumption that:
a) domestic governments were able to handle the neccesary adjustment when their exports and imports did not balance
b) all countries were willing to participate in international trade
c) the dollar would maintain its value
d) none of the above

2. The Keynesian productivity deal:
a) called for the active intervention of the state to stimulate growth in productivity and output
b) linked increases in wages to increases in productivity so that wages and profits could both rise
c) was a response to domestic and international crisis
d) all of the above

Section B: Essay Questions

V.1. a) Explain the classical analysis of markets that would justify Say's Law under the condition that workers earned enough to have savings, i.e., that in each period not only might firms have unspent profits but workers might have unspent wages. b) in what ways did the classical analysis of the species-flow mechanism amount to an extension of that theory to the international level?

V.2. Keynesian macroeconomics is usually thought of by economists as justifying a "demand management" approach to economic policy via the use of monetary and fiscal policy. Discuss the appropriateness of this characterization in terms of both a) the policies used to fight depression and b) the policies used to correct international trade deficits under Bretton Woods regime of fixed exchange rates.