Interdepartmental Studies 369 - B1
History of Economic Thought
Section A (20 points)
Do the following four questions. Each question is worth five points. Each question should be answered in one or two paragraphs.
1. Consider the following quote from Eric Sha
y:
Marshall is essentially i
elevant because all he ever says is, “It depends.”
Do you agree or do you disagree? Explain your response.
2. According to Sen, how can A
ow’s impossibility theorem be resolved?
3. Another quote, this one from Brain Equator:
The positive thing about the work of Keynes is that it was contextual; the frustrating thing about the work of Keynes is that it was contextual.
What does Brian mean?
4. Paul Samuelson is considered to be a prominent Keynesian economist. LIST five other prominent economists who could be considered part of the Keynesian or New Keynesian (Post Keynesian) school of economics. Note: John Maynard Keynes cannot be a on that list.
Section B (20 points)
Select the best answer to the following multiple choice questions.
1. Menger’s solution to the issue of how much to consume was reflected in the __________
principle.
a. Price.
b. Mux/Px.
c. Equimarginal.
d. Subjectivity.
2. In the framework of the discussion about determining the value of a good, Marshall remarks: “We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper…”. Which two possibilities were in that discussion – considered by Marshall as hardly useful- set at opposite sides?
a. natural value versus exchange value.
b. total utility versus marginal utility.
c. utility considerations versus production costs.
d. surplus value versus exchange value.
3. For Henry George __________________ were a revolting violation of social justice.
a. external diseconomies.
b. progressive income taxes.
c. monopolies.
d. manipulations of land values.
4. Mitchell felt that business cycles were largely the result of
a. reactions to businesses to changing rates of profits.
b. changes in fiscal policy.
c. fluctuations in money supply.
d. changes to patterns in international trade.
5. Veblen believed that the concept of equili
ium as used by orthodox economists was
a. co
ect except that it over emphasized the impact of production.
b. inco
ect as it failed to capture the marginal propensity to consume.
c. normative as orthodox theorist implied without proof that equili
ium is good.
d. positive and supported by empirical evidence.
6. Gal
aith’s invisible hand refers to
a. the markets forces that drive an economy to an equili
ium.
b. the social forces that counteract economic forces.
c. the legal forces that push the economy to produce results that best suit the government.
d. the economic forces that yield a result that is best for society.
e. the countervailing forces that effectively subdue the exercise of economic power.
7. In the Socialist Calculation debate,
a. Cassel concluded that a socialist state would be able to direct production in the best way.
b. Mises stated that socialist governments could estimate market prices.
c. Lange said that socialism cannot duplicate the functions of capital allocation.
d. Lange stated that a socialist economy could work but with markets for consumer goods and
labour.
1
Figure 8
2
3
8. Consider Figure 8.
With the existence of an external costs,
a. the marginal social curve would be curve 2 and the market quantity would be greater than
the social optimal.
b. the marginal social curve would be curve 1 and the market quantity would be greater than
the social optimal.
c. the marginal social curve would be curve 2 and the market quantity would be less than
the social optimal.
d. the marginal social curve would be curve 1 and the market quantity would be less than
the social optimal.
9. In the basic Keynesian system, a marginal propensity of consumption equal to 0.85 indicates
a. for every $100 of income, $85 is spent on consumption goods.
b. for every $85 of income, $100 is spent on consumption goods with $15 attained through loans.
c. for every $100 of income, $15 is saved.
d. a and c.
10. The transactions motive refers to
a. the desire to hold some cash on hand for unforeseen emergencies.
b. the desire to hold some cash on hand in order to pay for cu
ent purchases.
c. the desire to hold some cash on hand while waiting for interest rates to rise.
d. the desire to hold some cash on hand while waiting for the price level to fall.
Section C (60 points)
Do the following four questions. Each question is worth fifteen points. Each question should be answered in three to five paragraphs.
Question 1
This course basically has taken a relativist approach. Given that, with any two writers of your choice, explain what you think inspired their theories and conclusions.
Question 2
The standard “Principles of Economics” na
ative suggests that Economics underwent a “marginalist revolution” in the last quarter of the 19th century (via the work of Jevons, Walras and Menger). Is this a defensible thesis. Explain. How did the marginalist perspective differ from the classical perspective?
Question 3
How would Veblen respond to the argument that the market directs self-interest toward societal interest?
Question 4
Discuss the following two quotations. With which, if either, do you agree?
Up to a certain point it is possible to compare the influence of economic theories on society to that of grammarians on language. Languages are formed without the consent of grammarians, and are co
upted in spite of them; but their works throw light on the laws of the formation and decadence of languages…[Cournot, 1838]
“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scri
ler of a few years back.” [Keynes, 1936]