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Exam Questions M.I.T.

M.I.T. General exams in money and banking, 1952 and 1956

 

 

In this post we find transcriptions of three exams from the M.I.T. economics department for 1952 and 1956. The date of the second of the three is somewhat uncertain, with only a handwritten note “Spring 1956 (?)” at the top indicating the likely date. Since the question involving changes in bank balance sheets is identical with that in the September 1956 exam, it seems plausible that the dates of the second and third exams were close.

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GENERAL EXAMINATION IN MONEY AND BANKING

Monday, May 12, 1952
9:00-12:00 m.

  1. “We have arrived at a fairly deflation proof monetary framework.” What does this statement mean?
  2. Explain the gold standard as it functioned prior to World War I and discuss this standard as a practical policy for our times.
  3. Explain briefly the credit control instruments available to the federal reserve authorities and indicate how their control may be modified by political and other institutional conditions.
  4. “There must be some quantity of cash assets which would just suit each household and business firm in the economic system.” What determines this quantity? What happens when the actual cost [sic, should read “cash”] held does not match this quantity?
  5. Explain the proposal for 100 per cent money. What is the purpose of the plan and its shortcomings?
  6. Write a short exposition of what you consider to be the proper goal of monetary policy.

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General Examination in Money
[handwritten note:  “Spring 1956(?)”]

Total Time:  3 hours.

I

60 minutes

Compare the essential features, similarities and differences in so far as they relate to the setting of Central Banking policy of

(1) The Bank of England, as set up under the Bank Act of 1844;
(2) the National Banking system prior to the Federal Reserve Act;
(3) the Federal Reserve system as initially enacted, and
(4) The Federal Reserve system as amended in its present form.

Show how the essential changes in the structure of the Central Bank reflected the development of and changes in the underlying theories of Central Bank policy and of the role of money in the economy.

II

30 minutes. Answer both questions.

  1. Define what is meant by the “expansion coefficient” of the banking system. Using your definition, estimate this coefficient for the U.S. banking system. Note: In defining your coefficient, you will also have to define what you mean by “banking system”.
  2. Suppose that over a given period, the following changes are noted:
Increase in Federal Reserve Credit 1000
Decrease in Float 50
Increase in Money in Circulation 200
Increase in Commercial Bank Capital 150
Decrease in Treasury Currency outstanding 100
Increase in Currency holdings of Commercial Banks 80

What is the resulting change in member bank reserves? Assuming commercial banks to be loaned up, with a reserve ratio of 20%, what is the resulting change in money supply held by the public? Show how each of the itemized changes enters into the picture.

III

30 minutes. Write briefly on two out of the following three questions.

  1. Consider the main issues involved in U.S. experience with legislation against concentration in the field of commercial banking.
  2. Consider the main issues involved in bank examinations.
  3. What are the main fields of Federal credit policy now conducted outside the Federal Reserve system? Should they be placed under the Federal Reserve? Why or why not?

IV

30 minutes. Write on one of the following two questions.

  1. Forgetting about the politics of debt management, consider some of the essential problems of a theory of debt management, conceived as part of a broader framework of liquidity and monetary theory.
  2. Much has been said and written in recent years about the “rebirth” of monetary policy. Discuss and appraise the factors behind this development, allowing for both theoretical and policy aspects.

V

30 minutes. Write on one of the following two questions.

  1. “Looking back over the development of monetary theory, the three outstanding landmarks are Wicksell’s concept of the natural rate, Fisher’s treatment of velocity and Keynes’ concept of liquidity preference. All three are necessary parts of a complete system of monetary theory and need be considered if one wishes to understand the role of money in the economy.” Explain and discuss. Do you agree with the statement?
  2. Discuss the issues involved in the controversy between the “liquidity preference” and the “loanable funds” approach to interest theory. Do you think that the two can be reconciled? If so, how?

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GENERAL EXAMINATION IN MONEY AND BANKING

September 12, 1956

Answer any five questions.

  1. Describe and contrast the “Cambridge cash balance” approach to the “quantity theory of money” with that of Fisher. What have been the historical trends of economists’ views toward the quantity theory? Interpret and evaluate the cause behind these trends, giving the present status of that theory.
  2. Evaluate the current weapons of American monetary policy in terms of their importance and effectiveness. Illustrate by concrete experiences.
  3. “Debt management is part of fiscal policy and also of monetary policy. It involves the interrelations of asset theory with income flow theory, and can only be understood in terms of various theories of liquidity and loanable bonds.” Comment on this theme.
  4. What have been the important evolutionary changes in the American banking system and related financial institutions? Contrast with the U.K. or other countries.
  5. Synthesize the “pure-theory” aspects of capital and interest with the “monetary, effective demand, uncertainty” aspects of the problems. Resolve controversies where you can.
  6. Suppose that over a given period, the following changes are noted:
Increase in Federal Reserve Credit 1000
Decrease in Float 50
Increase in Money in Circulation 200
Increase in Commercial Bank Capital 150
Decrease in Treasury Currency outstanding 100
Increase in Currency holdings of Commercial Banks 80

What is the resulting change in member bank reserves? Assuming commercial banks to be loaned up, with a reserve ratio of 20%, what is the resulting change in money supply held by the public? Show how each of the itemized changes enters into the picture.

  1. Write a half hour essay on the interrelations of fiscal and monetary policies.

 

Source:  Duke University. David M. Rubenstein Rare Book and Manuscript Library. Economists’ Papers Archive. Paul Samuelson Papers, Box 33, Folder “Teaching Exams 1952, 1956”.

Image Source: M.I.T. Technology Review, March 1914.