BADM 7200 Final Exam (gradescope)

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What two documents were published in 1776.

* The “Wealth of Nations” by Adam Smith
* U.S. Declaration of Independence

What does Friedman argue is the relationship between economic and political freedom?

Economic freedom is an essential requisite for political freedom.

Did Smith and Jefferson believe that concentrated government power would allow policy makers to maximize utility for citizens?

No

What does Paul Romer argue is the reason that Nelson doesn’t have electricity>

Bad rules. The electric company is required to sell electricity at a price below cost, and therefore does not have the incentive to provide the electricity to enough people.

Why does Paul Romer argue there is a difference in the amount of lights in North vs. South Korea?

North and South Korea have very different sets of rules that have lead to different amounts of economic development.

What is the reason Romer provides for the difference \[between the amount of lights in North vs. South Korea\]?

North Korea’s rules are too strong and oppressive.

What is the lesson learned in the Caribbean in relation to the Korean Peninsula?

Unlike North Korea where rules are too strong and oppressive, rules are too weak in Haiti.

What is the “brightest spot in China”?

Hong Kong

Why is Hong Kong the “brightest spot in China”?

Because the city operated under very different rules that the rest of China. These rules were copied from working market economies of the time and administered by the British.

What are three items Romer argues are needed for a successful charter city?

* Charter (i.e., good rules)
* Start with uninhabited land. People can come live there under the new charter, but no one is forced to go live there.
* Choices for leader. To achieve this, allow for partnerships with other nations.

Does Paul Romer believe that the charter model is the same as colonialism?

No. Unlike colonialism which involved coercion and condescension, this model is all about expanding choices.

What two examples does Romer give of places that this model might be tried?

* Cuba
* Africa

Is there enough land on earth to expand the charter city concept?

Yes, three billion people globally that live in cities only take up 3% of the arable land on earth.

What is the main roadblock/impediment to expanding charter cities?

A failure of imagination

What does Barro argue is the origin o the 2008 Great Recession?

housing market

What “critical mistake” was made in the housing market?

People thought housing prices could not fall on average.

Does Barro believe that the next crisis is likely to occur due to the same mistakes of the past?

No. These mistakes have been learned, particularly by the financial sector. It’s unlikely that the next crisis will look like this.

How much Real GDP decline in the great recession?

Real GDP declined by 4.1%

What was the average growth rate during the recovery?

2\.8%

How does Barro characterize the recovery after the 2008 recession?

Dissapointing

What was the growth rate during the recovery post 1982 recession?

4\.3%

What was the growth rate during the recovery post 1991 recession?

3\.6%

Does Barro believe that Reagan and Clinton had dramatically different economic policies?

No, Clinton turned out to be a conservative in terms of economic policy being kind of a “twin with Reagan” on economic policy.

How did the Great Recession in the U.S. compare with other countries globally?

The U.S. was a little bit *less impacted* than the average country by the recession.

According to Duflo, how many children under the age of 5 die every year?

9 million per year

The amount of children under the age of 5 that die every year is the equivalent to a Haiti earthquake…

every eight days

What book(s), mentioned by Duflo, argues that we know how to end poverty and that the solution requires spending more money on aid?

“The End of Poverty” by Jeffrey Sachs

What book(s), also mentioned by Duflo, argues that aid can exacerbate corruption and even hurt economic development?

* “The White Man’s Burden” by William Easterly
* “Dead Aid” by Dambisa Moyo

How many people die each year from Malaria?

\~881,000 per year

Where do they live (those who die who are affected by Malaria)?

Over 90% live in Africa

What age range is at most risk \[for Malaria\]?

children under 5

What are the potential concerns with giving people bed nets for free?

* people will not value them
* people might use them for other purposes, such as fishing net

Does Duflo think we can do randomized controlled trials for social policies?

Yes. If done correctly, you can take the guess work out of policy making by testing what works.

Describe the randomized controlled trial for measles vaccinations in your own words.

“There are 3 test groups for the randomized controlled trial for measles vaccinations. "Camps" are regular sites where people can easily receive vaccines. "Camps with incentives" give people lentils after they receive vaccines. The control group remains the same as before so that the other groups can be compared to it. Each group's immunization rates are tracked from baseline to endline. The trial's results show the effectiveness of each test group.”

What do the results of the randomized controlled trial show?

Areas with camps and incentives achieved the highest immunization rates.

What three questions does Duflo pose regarding bednets?

* If people must pay for bednets, will they purchase them?
* When people get benets for free, will they use them?
* Do free nets discourage future purchases?

Which of the following describes the randomized controlled trial?

Some people are given free bed nets and others are charged different amounts at random.

What is the relationship between the price and whether someone decides to purchase?

As the price falls, people are more likely to purchase.

What is the relationship between purchase price and usage?

Purchase price has no effect on usage

What does Duflo find are the two most effective ways at increasing the years to education for $100?

* Provide parents information about the returns to education
* Deworm children

What three answers did Duflo provide?

* Immunizations can save lives at a cost of $300 per life
* Bednets can save lives at a cost of $300 per life.
* Deworming can increase education at a cost of $3 per extra year of education

In “I, Pencil,” what was the Pencil’s claim?

Not a single person on the face of the earth knows how to make a pencil.

Explain the pencil’s claim in your own words.

“I, Pencil,” by Leonard E. Read simply begins discussing all that goes into creating a pencil: from the materials’ sourcing, to the people who labor, to the coffees each worker consumes, and the metal for the tools they use to name a few components. He continues by saying that everyone who takes part in the making of a pencil has specialized skills to do their job. It takes collaboration of different people with different abilities and strengths to make something. Not a single person can do it all and encompasses all the knowledge and skills to do every job needed to create that something. Read goes on to further explain the concept of the “invisible hand” and how it is at work moving the free market economy and making supply, demand, and prices more predictable. Letting people work together harmoniously, without coercion, will be effective and efficient to meet the needs and wants of others in which their work provides for. Mutual collaboration will lead to “a faith in free people.” If that is lost, people assume that the jobs used to satisfy needs must be done with the help of government coercion. By that point, the “invisible hand” would be lost.”

In “Why Nations Fail,” what countries does James Robinson juxtapose at the beginning of the video?

North and South Korea

According to Robinson, which are true about poor countries relative to rich countries?

* People in poor countries are less educated on average
* Poor countries tend to have less healthy populations
* People in poor countries live shorter lives
* Poor countries have worse government services

Who was the winner of the lottery in Zimbabwe in 2000?

Zimbabwe President, Robert Mugabe

Robinson shows the patent of the _____ in “Why Nations Fail.”

Light bulb

What does Robinson argue is the effect of patents on economic growth?

Patents protect intellectual property rights, therefore incentivising technological innovation.

What is an “inclusive economic system”?

Inclusive institutions incentivize innovation

How did Bill Gates earn his fortune, according to Robinson?

Through innovation in the computer software industry.

How did Carlos Slim earn his fortune, according to Robinson?

By creating and owning a telecommunications monopoly.

What is an “extractive economic institution”?

Extractive institutions create rules in society that impede incentives and opportunities.

What are the two elements needed to create inclusive political institutions?

* Political power is broadly distributed in society.
* A strong state that can enforce the law.

Who ran the Standard Oil Company in the United States?

John Rockefeller

Was Standard Oil Company successful at achieving a monopoly in the United States? Why or why not?

No, federal antitrust authorities broke up Standard Oil Company.

Are economic institutions independent of political institutions?

No

At the end of the video, what country does Robinson discuss that is having challenges balancing the two principles outlined in this video?

Greece

In “End This Depression Now!”, how does Krugman describe the magnitude of the Great Recession?

* “a human disaster”
* “corrosive for the present and the future”
* “will do enormous damage to our nation”

What does Krugman argue is the impact of recession on young people?

This will scar young people’s careers for their entire lives

What theories (that Krugman mentions) do people have for poor economic performance?

* Corporate tax rates
* Entitlements
* Shortage of very specific high skilled workers

What is the problem according to Krugman?

There is not enough demand in this economy.

According to Krugman, from a economics standpoint, is this problem hard to fix?

No, this is not a hard problem to fix.

Does Krugman believe the stimulus programs implemented in the U.S. and Europe were adequate?

No, the stimulus programs were inadequate. In fact, both the U.S. and Europe have implemented the reverse of stimulus; austerity.

Which of the following does Krugman believe is true?

Additional government spending during the great recession would have likely reduced the severity of the recession.

Does Krugman believe that government spent too much money in response to the 2008 recession?

No

Explain the relationship between Paul Krugman’s view of spending during a business cycle contraction and John Maynard Keynes’ work.

Keynes believed that government spending during a recession could stimulate economic growth. Krugman agreed with this, but also believed that increased government spending during a recession could prevent a deeper and longer-lasting recession. Both economists emphasized the importance of government intervention during economic downturns.

Explain the relationship between Paul Krugman’s view of spending during a business cycle contraction and John Maynard Keynes’ work.

Krugman’s view aligns with Keynes’ belief that increased government spending can stimulate the economy during a downturn. They both argue that austerity measures during a recession can worsen economic conditions.

Explain the relationship between Paul Krugman’s view of spending during a business cycle contraction and John Maynard Keynes’ work.

Krugman's spending view during a contraction and Keynes' work share a significant relationship. Krugman, who is an American economist, is known for his work on international economics and macroeconomics. He believes that during a contraction, the government should increase its spending to stimulate the economy. This view is similar to Keynes' work, who is considered the father of modern macroeconomics. Keynes' theory suggests that during a recession, the government should increase its spending to create demand and boost economic growth.

Both Krugman and Keynes believe that government intervention is necessary during a contraction to prevent a prolonged economic downturn. They argue that government spending can create jobs, increase consumer spending, and promote economic growth. However, their views differ on the extent of the government's role in the economy. Krugman believes that the government should take a more active role in managing the economy, while Keynes advocates for a more hands-off approach.

Furthermore, Krugman's spending view is also influenced by his belief in the importance of international trade. He argues that government spending can help boost exports and reduce the trade deficit. This view is not emphasized in Keynes' work, as he focused more on domestic economic policies.

In conclusion, Krugman's spending view during a contraction and Keynes' work share a close relationship. Both economists believe that government spending can help stimulate the economy during a recession. However, their views differ on the extent of government intervention and the role of international trade in economic policy.

What was Thaler and Sunstein’s “ambitious goal” in writing this book?

apply the techniques of the psychology of decision making and behavioral economics to improve decisions without limited decisions.

What was Thaler and Sunstein’s “ridiculously ambitious goal” in writing this book?

Offer a new approach to public policy that is neither left or right.

What does Thaler mean when he says “libertarian”?

choice preserving

What does Thaler mean when he says “paternalism”?

helping people achieve their ends as judged by themselves.

Does Thaler believe the term “liberal paternalism” is an oxymoron?

No

Does Thaler believe it is possible to design a neutral choice architecture?

No, choices have to be presented to people. Someone has to design how the choices are presented.

What example does Thaler provide to describe choice architecture?

The order the food is displayed influences what school children eat.

Why is there a fly in the Amsterdam urinal?

It reduces spillage by 80% by giving men a “target.”

What is a nudge?

Any small feature in the environment that attracts our attention and alters our behavior.

What is a default option (according to Thaler)?

What happens if we do nothing?

What example does he give of a default option?

The amount of time it takes for a screensaver to come up on a computer.

Does Thaler think the concept of a "slippery slope" is a good reason to be skeptical of nudges?

No, they are almost never helpful.

Does Thaler think policy makers should use bans and mandates?

No

What does Thaler think policy makers should do instead \[of using bans and mandates\]?

Just nudge

Why was the year 1988 a good year to have a child in China?

It was the year of the dragon.

 What did Han’s dad bring him in middle school?

Textbooks for master’s degree students.

What was Naci Mocan’s hypothesis for the impact of being born in the year of the dragon on educational outcomes?

Because class sizes would be larger educational outcomes would be hypothesized to be lower.

Was Naci Mocan’s hypothesis correct? Why not?

No, the dragon children had higher test scores later in life.

What was Han's father's reaction to his dream coming true?

(i.e. his father's dream of Han going to the U.S. and getting a Ph.D.)

His dream has not completely come true, and he expects that Han should have more and better accomplishments in the future.

Why was Ariely in the hospital for three years?

70 percent of his body was burned

What was the interesting lesson Ariely learned while studying at the University?

There is an experimental method in which researchers create a replica of a real-world question in an abstract way to try and answer the question.

What are three ways the nurses could have reduced Ariely’s pain?

* Longer duration and less intensity.
* Start with the face and moving to less painful areas next.
* Provide a break in the middle to let him recuperate.

Which of the following go into a cost benefit analysis of whether or not to cheat according to Ariely?

* What is the probability of being caught?
* How much do I stand to gain from cheating?
* How much punishment would I get if I get caught?

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In Ariely's experiment with simple math problems, did students cheat more when more money was being offered for each correct question?

No, as the amount of money on the table increased, he still observed a lot of people cheating but only by a little.

Did students with lower probability of getting caught cheat more?

No, this was not observed. A lot of people continued to cheat, but just by a little bit. And they were not sensitive to the probability of being caught.

In his research, does he find that atheists are more likely to cheat after swearing on the Bible?

No. Even self-declared atheists are less likely to cheat after swearing on the Bible.

Are people less likely to cheat after agreeing to the honor code?

Yes. People are less likely to cheat after agreeing to the honor code.

Why is this amusing in this context?

MIT does not have an “honor code”

Are people most likely to cheat for tokens of cash?

People are more likely to cheat for tokens.

What did the acting student do during the cheating experiment?

Stood up in the lab and said “I’ve solved everything. What do I do now?”

What happened to cheating \[in the experiment\]?

It depends on what type of sweatshirt the acting student was wearing.

As humans, are our intuitions often correct?

Yes