Eco 302
Introduction to Macroeconomics
Fall 1995
Prof. Harry Cleaver
FIRST TEST
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.