Economics 403: Advanced Topics in Macroeconomics

Midterm exam #2

Fall 2002

• Answer each question in your own words.
• Be as specific as you can.
• Don't feel that you have to write a book.

1. “The amount of social capital in a society is a primary determinant of its well-being.” Explain how this might be the case with reference to the articles you have read. Then evaluate the claim using the available empirical evidence. Don't just write everything you know about social capital - focus on answering the question.
2. “Central banks are predisposed towards delivering high inflation with no corresponding benefit. Therefore the Bank of Canada should be replaced by a computer designed to follow a simple mechanical rule for monetary policy.” Explain how this might be the case, with reference to particular theoretical arguments. Then briefly evaluate these arguments (since we didn't look at the evidence on this question, a briefly stated opinion is fine).