Study Questions For The First Exam
ECON 307
These questions are not designed to take the place of studying your notes and the reading assignments. Do not e-mail me and ask me to answer all or some of these questions for you. If you have missed class, it is your responsibility to get the notes from another student. Once you have answered these questions yourself, if you are unsure of any of your answers, let me know and I will tell you if you are correct or not. Don't be afraid to ask me questions, I just want you to try to answer the questions yourself first.
Topic One: Introduction
Caldwell discusses several reasons why we should study the evolution of economic thought. What are they? Do you support or disagree with them? Why?
What two questions would distinguish the different schools of economic thought from each other (with respect to their methods)?
Most early economists (really up until the late 1800s) were not concerned with the method they used to come up with theories. Instead, how and why did they "invent" their theories?
Compare and contrast the understanding of the history of economic ideas with respect to: a) relativist vs. absolutist, b) Whig vs. anti-Whig, c) do ideas matter: yes or no, d) government vs. voluntary forces.
Topic: Mercantilism
The setting for large nation-states and mercantilism was readied by two different notions of power (or justifications of the state) -- explain both.
An important philosophical background to mercantilism was the idea that the total volume of wealth available for all countries was a more or less fixed magnitude -- a zero sum game. How does this proposition fit with mercantilist policy?
There are two approaches to defining mercantilism -- explain both.
What are the rules or ideas of mercantilism (per von Hornick)? What was the main objective? How was wealth (for a county) defined? What policy implications followed?
Why are both Mun and Hume seen as precursors to the quantity theory of money (and what is this theory)?
Explain Hume's specie flow mechanism. What was Hume trying to demonstrate with this theory?
What is the "utility of poverty" concept?
How does the "backward bending supply curve of labor" theory relate (support) the utility of poverty theory? Explain the income and substitution effects in your answer.
Critics of the backward bending supply curve of labor say that the theory ignores how the two "effects" might not be mutually exclusive -- explain this criticism.
Provide another reason (besides the backward bending supply curve of labor) as to why someone might favor the "utility of poverty" theory.
What are the two defenses of mercantilism we discussed in class: liquidity and Keynesian?
Keynes himself said there are two limitations to his theory, what are they?
What does it mean to view mercantilism as an "economic process of rent seeking"? In your answer you should talk about the "demand and supply of regulation" and define rent seeking.
Why aren't consumers and taxpayers good at organizing politically?
There are two theories regarding the transition to "liberalism" from mercantilism: the doctrinal transition and the institutional transition. Explain both.
Topic: Physiocrats
Given the setting for the Physiocrats, what intellectual and institutional forces (one each) led to the “liberal” revolution in England and in America that we discussed?
What was the Physiocrats idea of "government by nature?"
How did this relate to the idea of "laissez faire."
What sector of the economy was the productive sector, according to the Physiocrats?
What sector was steril (according to the Physiocrats)?
Why did the Physiocrats believe #3 and #4 above?
In the Tableau Economique, be able to explain how the flow of income moved (where it started and where it flowed) - the actual numbers and details aren't important, just the general idea of what it was supposed to represent.
How did the circular flow in the Tableau Economique increase i.e., how did the economy grow, according to the Physiocrats?
How does the Tableau Economique compare to the circular flow diagram often seen in economics textbooks today? Where do they start, etc.?
The Physiocrats have three general policy prescriptions we talked about. What are they and what is the reasoning behind them?
Quesnay and the Physiocrats divided capital into four categories. What are these? Relate the to Smith's fixed capital and circulating capital (what are these called today)?
Criticize the Physiocrats.
Topic: The Differing Paths
What are the three differences between the two main paths in economic thought since the Physiocrats that we discussed in class?
Generally understand where the paths led.
Where did Marx fit in with respect to the paths? What did he have in common with the "British" path?
Mainstream economics today would be considered a synthesis of what two schools?
What two "main" schools are considered heterodox today?
What are Rothbard's theories as to why the ideas of the French tradition was lost for quite some time?
Topic: Petty and Hume
What is William Petty most known for in the history of economic thought?
Petty is known for discussing the concept of velocity and how institutional factors change it. Explain.
What is the (supposed) difference between normative and positive economics?
David Hume distinguished between the short-run and the long-run effects of an increase in the money supply. Explain. Relate this to the modern (although somewhat out-dated) Phillip's Curve theory.
In relating Hume's short and long run effects of an increase in the money supply to more modern day theories - what did Milton Friedman say regarding "adaptive expectations" and the long run Philip's Curve?
Did David Hume think trade was a zero-sum game? Explain. Did he think the benefits of trade were limited to the larger, industrialized countries? Explain.
David Hume seemed to understand the relationship between the elasticity of demand and the revenue the government would receive from a tax. Explain.
Make sure you look over the readings, homework and in class exercise questions again. There are four readings for this exam: Caldwell, von Hornick, Hume and Rothbard.