Below are three final exams for the Johns Hopkins University graduate course on business cycles taught by Evsey Domar. The examination for 1948-49 has been posted earlier, we see that a few of those questions were recycled below.
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Economics 617
BUSINESS CYCLES
Three hours —January 25, 1951—E.D. Domar
- How does the U.S. Department of Commerce treat the following items in the computation of gross national product, national income and consumers disposable income:
- Interest on the Federal debt paid to consumers.
- Dividends received by American consumers from abroad.
- Personal income taxes.
- Sales taxes.
- Social security payments made by the government to individuals.
- Undistributed profits of corporations. If you disagree with the Commerce Department methods, present and justify the methods you would recommend.
- Set up a simple model of the Keynesian system including its interest theory and explain its essential differences from the so-called classical system.
- 1. Construct a model according to the following conditions:
a) Consumption of a given period is a linear function of the income of the same period.
b) Investment of a given period is a linear function of the difference between incomes of two immediately preceding periods.
c) Income is the sum of consumption, investment and an export balance (constant), all of the same period.
- Derive the equation describing the movement of income over time.
- Analyze this equation for convergence, divergence and fluctuations and derive the critical values of the parameters.
- Make a graph of your results.Give a careful explanation of each step.
- Now that we are entering an inflationary period, increased production is suggested as an excellent anti-inflation measure. But larger production means larger incomes which intensify inflation. What then is the actual effect of increased production on inflation?
Indicate clearly each step in your reasoning.
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ECONOMICS 618
BUSINESS CYCLES
E. D. Domar—Three Hours—May 21, 1952
Answer any four questions. They carry equal weights. Your reasoning is more important than your answers.
I.
“So far as capitalism is concerned we are undoubtedly justified in calling underconsumption a disease of old age.” (Paul Sweezy, The Theory of Capitalist Development,” p. 189.)
Comment.
II.
“Technological progress is alleged to create new investment opportunities by making existing capital assets obsolete. But to the extent that such obsolescence was foreseen, the assets were depreciated over a shorter period and thus gave rise to larger gross savings. Therefore expectedtechnological progress fails to stimulate the economy.”
III.
Hansen emphasizes the positive effect of the growth of population on investment, national income and employment. Yet during the depression many countries suffering from unemployment tried to reduce immigration.
Can you explain this contradiction?
IV.
About 1945 or 1946 when a large loan to Britain was discussed in Washington, the New York Times tried to justify it on the grounds that the British were sure to spend all this money in the United States. On the other hand, the Russians (who also might have asked for a loan) could not be so trusted.
Comment on this and develop your answer into an essay.
V.
Write an essay on any subject related to the course but not covered in your term papers. Take something interesting if possible.
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THE JOHNS HOPKINS UNIVERSITY
E. D. Domar May 21, 1954
ECONOMICS 617-618
(Business Cycles)
Three Hours
Answer all questions. They carry equal weights.
I.
Present and analyze some (respectable) business cycle theory not discussed in your own term paper.
II.
The following statement appeared in the National City Bank Monthly Letter (Jan. 1944) regarding government spending as a means of raising the level of income and employment:
“Government spending tends to be like a drug, in that it takes larger and larger doses to get results, and all the time debt and taxes get higher and higher.”
Comment. What could be said regarding private investment directed to the same purpose?
III.
“In spite of his claim to the contrary, Keynes did not succeed in proving the possibility of underemployment equilibrium if wages and prices were assumed to be flexible. That a long period of unemployment could persist as a result of wage and price rigidity we had known long before Keynes.”
Comment on this statement and show what effects flexible prices and wages would have on elimination of unemployment (in a depression) and a bottleneck (during inflation). Indicate clearly every step in your analysis. What practical recommendations follow from your discussion?
IV.
The following comment was made by Mr. Ayzenshtadt, a Soviet economist, in 1947:
“Even the greatest admirers of Keynes and of his theory that loan capital is the main propeller of the industrial cycle, do not see anything new in it…Keynes himself thinks that the ‘novelty’ of his system lies in the equilibrium formula of the economic process, in which the independent and dependent variables are arranged as follows:
Independent variables:
1. Propensity to consume
2. Marginal efficiency of capital
3.Rate of interest
4. Liquidity preference.
Dependent variables:
1. Saving
2. Investment
3. Level of employment.”
Comment. Be specific.
Source: Duke University. David M. Rubenstein Library of Rare Books and Manuscripts. Economists’ Papers Archives. The Evsey D. Domar Papers, Box 16, Folder “Final Examination, Business Cycles”.
Image source: Domar, Evsey D.“” Webpage at the MIT Museum Website.