Chicago. Money and Banking. Economics 330 Exam. Autumn 1932

Here we have the exam questions and Milton Friedman’s choices together with his notes for one of the answers to Lloyd Mints’ graduate course (first in a sequence of the two quarter courses.) on Money and Banking in 1932.

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[Univ. of Chicago]

[Milton Friedman (MF signature)]

 

ECONOMICS 330
Autumn, 1932

Write on any four questions.

1. [✓] “The banks could either keep the demand for real capital within the limits set by the supply of savings or keep the price level steady; but they cannot perform both functions at once.” (Hayek) Discuss this statement critically.
2. “Only the purely static quantity theory needs no index number, for its comparisons assume relative prices to be unchanged inter se. The objections to Professor Fisher’s Equation of Exchange arise mainly from the faults of the price index implied in it.” (Hawtrey) Explain and evaluate this statement.
3. [✓] The criticism is sometimes made of the quantity theory that it assumes other things to be equal, whereas in fact they are not. Discuss this criticism. What “other things” are referred to?
4. Discuss the relation between the k of Keynes’ earlier equation and the velocity of circulation.
   b. Discuss the statement that changes in the velocity of circulation of goods cannot bring about changes in the price level because of the fact that they necessarily bring about compensating changes in the velocity of circulation of money.
5. [✓] According to Keynes’ analysis what would it be necessary to do in order to eliminate the business cycle? State and support your opinion of Keynes’ conclusion.

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[Milton Friedman’s right margin notes for Question 4:]

Source: Hoover Institution Archives, Milton Friedman Papers, Box 115, Folder  13 (Biographical. Class exams, ca 1932-38).

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Cf. Keynes: Tract on Monetary Reform (1923), p. 76-77

“We can measure this definite amount of purchasing power in terms of a unit made up of a collection of specified quantities of their standard articles of consumption or other objects of expenditure….Let us call such a unit a ‘consumption unit’ and assume that the public require to hold an amount of money having a purchasing power over k consumption units. Let there be n currency notes or other forms of cash in circulation with the public, and let p be the prices of each consumption unit (i.e., p is the index number of the cost of living), then it follows from the above that n = pk. This is the famous Quantity Theory of Money.”