Following is the second midterm exam that I gave in Econ. 4H last Spring. The questions should give you an idea of some of the topics we've covered recently that I think are important.

David Shapiro
Economics 4H
March 18, 1996

Instructions: Please read each question in its entirety before you begin your answer. You should try to allocate your time according to the value of the questions.

1. (60%) "Macroeconomics is a field of economics that studies important economic phenomena, but uses flawed measures of these phenomena."

Write an essay in which you address the quote above, focusing on measures of three phenomena: inflation, unemployment, and real GDP. More specifically, in each case you should describe how we measure the phenomenon, and briefly indicate why the phenomenon is important and how we use the measure. Then you should discuss the flaw or flaws in the measure -- that is, what weaknesses exist that either may limit our ability to use the measure for its various purposes (i.e., that make the measure imperfect for getting at the underlying concept that we seek to measure) or that bias the measure that we get.

[Note: I consider this to be essentially three 20-point questions focused around a common theme.]

2. (20%) A recent book that discusses the behavior of real wages since 1960 talks about the "inverted U of real wages" that the authors argue has characterized real wages over the past 35 years. Write an essay in which you discuss the behavior of the level and distribution of real wages during this period. Your essay should note why some people see an "inverted U" or stagnation in real wages since the mid-1970s, and whether or not (and why) you agree with the view that such stagnation or decline is an accurate portrayal of real wage behavior. Ideally, you should use a graphical supply and demand analysis to demonstrate changes in the level and distribution of real wages. Finally, you should briefly note the link between these real wage changes and new growth (neo-Schumpeterian growth) theory.

3. (20%) Provide a brief but global assessment of how investment activity in the U.S. compares to that in other countries. Briefly discuss the implications of these differences for long-run economic growth. Within the analytical framework of the investment demand schedule and the saving supply schedule, briefly discuss policies that might be implemented to increase investment activity in the U.S. so as to promote economic growth, noting how these policies would affect either the demand for growth-promoting investment or the supply of saving.
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